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The Emperor's Old Clauses: Unincorporated Clauses, Misleading Terms and the Unfair terms in Consumer Contracts Regulations

Published online by Cambridge University Press:  01 July 1999

Elizabeth Macdonald
Elizabeth Macdonald*
Affiliation:
University of Wales, Aberystwyth
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Abstract

Consumers frequently do not know of their rights and are unwilling to litigate. The powers of the Director General of Fiar Trading under the Unfair Terms in Consumer Contracts Regulations 1994 will often provide more effective protection for the consumer than common law rules. The powers are pre-emptive and enable unfair terms to be removed from standard form contracts, so that consumers simply cease to encounter such terms. Some protection may be provided for consumers by common law rules which allow a finding that clauses are not incorporated or that they do not have the legal effect which they may appear to the consumer to have. However, without knowledge or a willingness to litigate, consumers may be misled by such clauses and terms as to the legal rights generated aand they will not then be able to enjoy their rights to the full. This article examines the extent to which the powers of the Director General can be used to protect consumers from such misleading clauses and terms. It considers the interaction of the Regulations and the common law, the scope of the Regulations, and the application of the Regulation's test of fairness.

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The Cambridge Law Journal , Volume 58 , Issue 2 , July 1999 , pp. 413 - 436
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Copyright © The Cambridge Law Journal and Contributors, 1999

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References

1 E.g. OFT Bulletin 2, at p. 5; Bulletin 3, at p. 8; Bulletin 4, at p. 25.

2 Ignorance of their ineffectiveness may also be a factor.

3 See text at n. 65.

4 SI 1994/3159 implementing the EC Directive on Unfair Terms in Consumer Contracts (1993) OJ L95/29. See generally Beale [1989] C.L.P 229; Beale, , “Legislative Control of Fairness: The Directive on Unfair Terms in Consumer Contracts” in Beatson, & Friedmann, (eds.), Good Faith and Fault in Contract Law (Oxford 1995)Google Scholar; Collins (1994) 14 O.J.L.S 229; Brandt & Ulmer (1991) C.M.L. Rev. 647; Willett [1994] Consum. L.J. 114.

5 For excepted contracts see schedule 1.

6 Regulation 4.

7 Regulation 5(1).

8 Regulation 3(2).

9 It is intended to extend powers to consumers’ organisations to take action under the Regulations: see DTI Consultation Paper (Jan. 1998), “Widening the Scope for Action under the Unfair Terms in Consumer Contracts Regulations”. It should be noted that the Director General has so far achieved the deletion or alteration of unfair terms by agreement, without the need to obtain any injunctions: see OFT Bulletins on Unfair Terms in Consumer Contracts, 1–4.

10 See Beale [1989] C.L.P. 197; Collins (1994) 14 O.J.L.S. 229; Brownsword, , Howells, & Wilhelmson, in Willett, (ed.), Aspects of Unfairness in Contracts, (London 1996)Google Scholar.

11 Section 11(1). For the impact of this in relation to the width of terms see Stewart Gill Ltd. v. Horatio Myer & Co. Ltd. [1992] 2 All E.R. 257, 262: a term may be unreasonable not because of the effect it would have in the particular case but because of the way it would operate in relation to other possible circumstances.

12 See also OFT Bulletin 4, at p. 21: “Fairness is assessed in all the circumstances affecting the conclusion of contracts. The Director General applies the same test, but looking forward rather than back—in other words considering the circumstances that are generally likely to obtain, not those attending the conclusion of a particular contract”. But see Brownsword, Howells & Wilhelmson op. cit. n. 10.

13 See text at n. 80.

14 Bulletin 4, at p. 22.

15 [1989] Q.B. 433.

16 At p. 439.

17 Regulation 3(3).

18 It has been questioned how apposite such factors are outside the context of a particular contract between a particular seller or supplier and a consumer: Tenreiro, Maria (1995) 3 European Review of Private Law 273, 278Google Scholar. See also OFT Bulletin 4, at p. 23; Brownsword, Howells & Wilhelmson in Willett (ed.), Aspects of Unfairness in Contracts, (London 1996) pp. 36–37Google Scholar. However, when the more general assessment with which the Director General of Fair Trading is concerned falls to be considered, such matters will have to be considered at a more abstract level: for example, in relation to the procedures which would normally be adopted by the seller or supplier for incorporation of the standard terms in question.

19 See n. 4.

20 Germany has made extensive use of a good faith test and the “test does not seem to be purely procedural”: Beale, “The Directive on Unfair terms in Consumer Contracts” at p. 244. For consideration of the aptness of a procedural approach see Brownsword, Howells & Wilhelmson op. cit. n. 18.

21 On substantive fairness generally see Leff, , “Economic Analysis of Law: Some Realism about Nominalism” (1974) 60 Virginia L.R. 451CrossRefGoogle Scholar; Epstein, , “Unconscionability: A Critical Reappraisal” (1975) 18 J. Law & Econ. 283CrossRefGoogle Scholar; Gordley, , “Equality in Exchange” (1981) 69 Cal. L.R. 1587CrossRefGoogle Scholar; Benson, , “Hegel and Contract Law” (1989) 10 Cardoza L.R. 1077Google Scholar.

22 Beale, “Unfair Contracts in Britain and Europe” (1989) C.L.P. 197, 200–201. See also Smith (1994) C.L.P. 1, 6–7.

23 Beale op. cit. n. 22.

24 Beale op. cit. n. 22 at pp. 204–205.

25 OFT Bulletin 4, at pp. 22–23.

26 Beale, “The Directive on Unfair terms in Consumer Contracts” at p. 243.

27 For a recent example of a case where the majority of the Court of Appeal took the line that the clause was not incorporated but, even if it was, it was rendered ineffective by the Unfair Contract Terms Act 1977, see AEG (UK) Ltd. v. Logic Resources Ltd. [1996] C.L.C. 1529.

28 With the possible exception of the reference to powers to obtain injunctions against persons “recommending” the use of unfair terms, if it is sufficient if their use as terms is recommended.

29 Which confers on the Director General the power to seek injunctions.

30 If such an approach were to be taken, it would require the mere existence of such an intention to be sufficient and it would be irrelevant that the intended process of incorporation could not make the clauses terms of the contract.

31 See text at n. 12.

32 OFT Bulletin 4, at p. 9. This not without some ambiguity, however, and see also OFT Bulletin 1, at pp. 41–42.

33 Parker v. South Eastern Ry. Co. (1877) C.P.D. 416, 421; Roe v. Naylor [1917] 1 K.B. 712, 715; L'Estrange v. Graucob [1934] K.B. 394; The Luna [1919] P.D. 22; Blay v. Pollard and Morris [1930] 1 K.B. 628; Curtis v. Chemical Cleaning and Dyeing Co. [1951] 1 K.B. 805, per Denning L.J. at 808; Bahamas Oil Refining Co. v. Kristiansands Tankrederie A/S (The “Polyduke”) [1978] 1 Ll. Rep. 211; Singer (UK) Ltd. v. Tees & Harlepool Port Authority [1988] 2 Ll. Rep. 164, 166; Harvey v. Ventilatorenfabrik Oelde Gmbh (1988) 8 Tr. L. 138; Charlotte Thirty Ltd. & Bison Ltd. v. Croker Ltd. (1990) 24 Con. L.R. 46; Saphir (Merchants) Ltd. v. Zissimos [1960] 1 Ll. Rep. 490, 499; Levison v. Patent Steam Carpet Cleaning Co. Ltd. [1978] 1 Q.B. 69.

34 [1934] K.B. 394.

35 The cigarette vending machine never worked satisfactorily and after a few days became jammed and unworkable.

36 [1964] 1 W.L.R. 125.

37 At p. 133. See, to similar effect, Jones v. Northampton BC (1990) The Times 21 May, Lexis, per Ralph Gibson L.J. See also Levison v. Patent Steam Cleaning Co. [1978] 1 Q.B. 69, per Lord Denning M.R. at p. 78.

38 Spencer, “Signature, Consent and the Rule in L'Estrange v. Graucob” [1973] C.L.J. 104.

39 (1871) L.R. 6 Q.B. 597.

40 (1978) 83 D.L.R. (3d) 400.

41 [1988] 1 All E.R. 348.

42 Rutherford & Wilson, ‘Signature of a document’ (1998) 148 N.L.J. 380. See also Downes, , Textbook on Contract (5th ed.), (London 1997)Google Scholar at 5.7.2.

43 [1996] C.L.C. 1127.

44 McKendrick, , Contract Law (3rd ed.), (London 1997) pp. 160–161CrossRefGoogle Scholar.

45 This seems to mean that the document must be such that the reasonable person would have realised it was intended to contain contractual terms. Although this conclusion was largely based on cases dealing with incorporation by notice, within fairly narrow confines it must clearly be correct. In the absence of knowledge a signing party should not be contractually bound by clauses printed on what the world at large would take to be a non-contractual document, such as one merely appearing to provide evidence of hours worked. Contrast the situation in relation to non est factum when the nature of the document would be clear to a reasonable person but it is being claimed it was not understood by the signatory.

46 [1930] 1 K.B. 41. Adams (1978) 7 Anglo-American L.R. 136.

47 [1988] 1 All E.R. 348. Parker v. South Eastern Ry. Co. (1877) C.P.D. 416; Thornton v. Shoe Lane Parking [1971] 2 Q.B. 163; Olley v. Marlborough Court Hotel [1949] 1 K.B. 532; Burnett v. Westminster Bank [1966] 1 Q.B. 742; Hollingworth v. Southern Ferries Ltd. [1977] 2 Ll. Rep. 257; Daly v. General Steam Navigation Co. Ltd. [1979] 1 Ll. Rep. 257; Dillon v. Baltic Shipping Co. (The “Mikhail Lermontov”) [1991] 2 Ll. Rep. 155; Metaalhandel JA Magnus BV v. Aarfields Transport Ltd. [1988] 1 Ll. Rep. 197, 204; Cockerton v. Naviera Aznar SA [1960] 2 Ll Rep 451; Mendelssohn v. Normand [1970] 1 Q.B. 177, 184; Van Toll v. South Eastern Railway Co. (1862) C.B.N.S. 75, per Byles J. at p. 88, but contrast Erle C.J. at p. 85; Thompson v. London, Midland & Scottish Ry. Co. [1930] 1 K.B. 41; Spurling v. Bradshaw [1956] 1 WLR 461, per Denning L.J. at p. 466; Thornton v. Shoe Lane Parking [1971] 2 Q.B. 163; Coval Alimentos SA v. Agrimpex Trading Co. Ltd. (The “Northern progress”) [1996] C.L.C. 1529; Circle Freight International Ltd. v. Medeast Gulf Exports Ltd. [1988] 2 Ll. Rep. 427; AEG (UK) Ltd. v. Logic Resources Ltd. [1996] C.L.C. 265.

48 Parker, per Bramwell L.J. at p. 428; Van Toll v. South Eastern Railway Co. (1862) C.B.N.S. 75, per Byles J. at p. 88, but contrast Erle C.J. at 85; Thompson v. London, Midland & Scottish Ry. Co. [1930] 1 K.B. 41, 53,56; Spurling v. Bradshaw [1956] 1 W.L.R. 461, per Denning L.J. at p. 466; Thornton v. Shoe Lane Parking [1971] 2 Q.B. 163, per Denning L.J.; Coval Alimentos SA v. Agrimpex Trading Co. Ltd. (The “Northern Progress”) [1996] C.L.C. 1529, 1543. In Thompson the reference was to clauses which were unreasonable “to the knowledge of the proferens” but no such restriction has been adopted.

49 More recently, the reference has tended to be to “onerous” clauses, rather than unreasonable ones, but it would seem that onerous clauses should be regarded as a type of unreasonable clause. Interfoto v. Stiletto Visual Programmes [1988] 1 All E.R. 848; Circle Freight International Ltd. v. Medeast Gulf Exports Ltd. [1988] 2 Ll. Rep. 427, 433; AEG (UK) Ltd. v. Logic Resources Ltd. [1996] C.L.C. 265. But see Coval Alimentos SA v. Agrimpex Trading Co. Ltd. (The “Northern Progress”) [1996] C.L.C. 1529, 1543.

50 Lewis v. M'Kee (1869) L.R. 4 Exch. 58; Crooks v. Allen (1879) 5 Q.B.D. 38, 40; Hood v. Anchor Line [1918] A.C. 837, 846–847; Thornton v. Shoe Lane Parking [1971] 2 Q.B. 163, per Megaw L.J. at pp. 172–173; Hollingworth v. Southern Ferries Ltd. (The “Eagle”) [1977] 2 Ll. Rep. 70, 76; Interfoto v. Stiletto Visual Programmes [1988] 1 All E.R. 848, per Dillon L.J. at pp. 351–352, Bingham L.J. at p. 357; Circle Freight International Ltd. v. Medeast Gulf Exports Ltd. [1988] 2 Ll. Rep. 427, per Taylor L.J. at p. 433. AEG (UK) Ltd. v. Logic Resources Ltd. [1996] C.L.C. 265; Coval Alimentos SA v. Agrimpex Trading Co. Ltd. (The “Northern Progress”) [1996] C.L.C. 1529, 1543.

51 Spurling v. Bradshaw [1956] 1 W.L.R. 461, 466.

52 Interfoto [1988] 1 All E.R. 348.

53 [1996] C.L.C. 265.

54 At p. 277.

55 At p. 277.

56 [1997] 2 Ll. Rep. 369.

57 At p. 385.

58 The red hand rule has been seen as applicable, for example, to a clause imposing an additional charge for retention of hired goods beyond a set period, when the hire charge was more per item per day than was charged by ten other hirers per item per week (Interfoto v. Stiletto Visual Programmes [1988] 1 All E.R. 848). More commonly, it has been applied in the context of exemption clauses to clauses exempting liability for personal injury due to negligence (Thornton v. Shoe Lane Parking [1971] 2 Q.B. 163, per Denning L.J.; see now section 2 of the Unfair Contract Terms Act 1977), and to terms removing rights given by statute, particularly in the context of personal injury (Thornton, Megaw L.J. at p. 173; Hollingworth v. Southern Ferries Ltd. (The “Eagle”) [1977] 2 Ll. Rep. 70, 76), although it has recently been considerably extended to a clause severely restricting liability for breach of the terms implied by the Sale of Goods Act 1979 (AEG (UK) Ltd. v. Logic Resources Ltd. [1996] C.L.C. 265). It has also been seen as applicable to clauses which would remove liability in relation to a key element of the proferen's performance (Adams (Durham) Ltd. v. Trust Houses Ltd. [1960] 1 Ll. Rep. 380, 387; Lacey's Footware v. Bowler [1997] 2 Ll. Rep. 369, Brooke L.J. at 384. It might be thought that the “core exclusion” would raise difficulties here but it may be that the “core” should depend upon the parties’ perceptions of the transaction, in the absence of any artificialities of incorporation or drafting. See OFT Bulletin No. 2, paragraph 2.25: “In our view it would be difficult to claim that any term was a core term unless it was central to how consumers perceived the bargain. A supplier would surely find it hard to sustain the argument that a contract's main subject matter was defined by a term which a consumer had been given no real chance to see and read before signing …”. A more technical line would, however, seem to be envisaged by the example of core terms in Recital 19 of the Directive.

59 For an example of this in relation to incorporation by a course of dealing see Macdonald [1988] L.S. 48.

60 The definition of consumer in the Regulations would need to be adopted and, with its automatic exclusion of companies, it is not one which admits of subtleties. See Regulation 2.

61 If the intention had to extend to the means to be adopted to incorporate a clause, the purposive interpretation would not improve on the prima facie interpretation. The clauses under consideration here are those in relation to which the seller or supplier does not have an appropriate contracting procedure to incorporate—i.e. although the seller or supplier does not intend to use a procedure which will incorporate them, his intention is that they should be terms. (The seller or supplier's knowledge of contract law is limited in such cases).

62 Recital 12, Directive on Unfair Terms in Consumer Contracts.

63 OFT Bulletin 3, at p. 12. See also e.g. the contract of Goodalls Carvans Ltd., Clause 8, OFT Bulletin 1, case 3.

64 OFT Bulletin 3, at p. 12.

65 OFT Bulletin 1, at p. 9.

66 Ibid., at p. 15.

67 Ibid., at p. 15.

68 [1951] 2 K.B. 739. See also Law Com. Rep. No. 154 at paragraph 2.15 and see Couchman v. Hill [1947] K.B. 554; Evans v. Merzario [1976] 1 W.L.R. 1078; Charlotte Thirty and Bison Ltd. v. Croker Ltd. (1990) 24 Con. L.R. 46. But see USA v. ARC Construction Ltd. (1991) 8 May, Lexis.

69 Per Lord Evershed M.R. at p. 744. See also Couchman v. Hill [1947] K.B. 554, 558.

70 [1982] 1 All E.R. 634.

71 See also Cooper v. Tamms [1988] 1 E.G.L.R. 257, 263. But see McGrath v. Shah (1987) 57 P. & C.R. 452, 459–461.

72 [1996] 2 All E.R. 573.

73 Nor did it generate an estoppel.

74 At p. 597.

75 OFT Bulletin 1, at p. 9.

76 Ibid., at p. 16.

77 Ibid., at p. 16.

78 However, the OFT did regard the entire agreement clause in one contract as “improved” by redrafting (OFT Bulletin 1, case 4 (Cordula), at p. 35, cl. 1). The original clause stated: “All terms of the Contract between the purchaser and the Company are contained in this document. No representations or warranties are made or given by the Company save as appear herein”. The “improved” clause stated: “It is the intention of the Company that all terms of a contract between the purchaser and the Company are contained in this document and in the brochures and specifications provided to the purchaser”. The revision was regarded as an improvement because it did not present itself as an absolute bar to other terms or representations.

79 OFT Bulletin 1, at p. 17.

80 In relation to the Directive in Brownsword, Howells & Wilhelmson, , “Between Market and Welfare” in Willett, (ed.), Aspects of Fairness in Contract (London 1996)Google Scholar.

81 It might be argued that “may” introduces no more uncertainty than is present in the “requirement of reasonableness” as set out in s. 11 of the Unfair Contract Terms Act 1977 (see Brownsword, Howells & Wilhelmson, op. cit., at p. 35) but that does not answer the point. There is a difference in kind between a provision which is set out as “the test” of something, such as “reasonableness”, albeit it may be an uncertain test, and a provision which merely says that something “may” be the case. Not only is the latter uncertain, it does not purport to set out the determinative test.

82 See text at n. 14.

83 It has been suggested that the drafting history of the Directive indicates that this element of the test subsumes within it cases where a term causes a contract to be significantly different from what the consumer could legitimately expect: Tenriero, Mario (1995) 3 European Review of Private Law 273, 276Google Scholar. The approach indicated here would be in keeping with that.

84 Recital 12, Directive on Unfair Terms in Consumer Contracts.

85 The rule of construction stated in Regulation 6 deals with disputes between a particular consumer and a seller or supplier and not the more general situation with which the Director General is concerned: Article 5, Unfair Terms in Consumer Contracts Directive. It would seem that some adaptation of it should be applied in the more general situation. However, it deals with ambiguity and the problem with entire agreement clauses is not one of ambiguity but of lack of connection with reality. Consumers are likely to be mislead because they are likely to be all too willing to assume that the law will have more regard to the written word than to the facts which actually occurred.