Unfair terms in English contract law

Unfair terms in English contract law are regulated under three major pieces of legislation, compliance with which is enforced by the Competition and Markets Authority (CMA).

In the late 20th century, Parliament passed its first comprehensive incursion into the doctrine of contractual freedom in the Unfair Contract Terms Act 1977.

Legislation, particularly regarding consumer protection, has also frequently been updated by the European Union, in laws like the EU Airline Compensation Regulation,[1] or the EU Electronic Commerce Directive,[2] which were subsequently translated into domestic law through a statutory instrument authorised through the European Communities Act 1972 section 2(2), as for example with the Consumer Protection (Distance Selling) Regulations 2000.

For this reason the Law Commission devised a draft Unfair Contract Terms Bill to unify the two in one document, and make protection for small business explicit, but Parliament has not acted yet.

[4] The Competition and Markets Authority replaced the Office of Fair Trading as the UK regulator on 1 April 2014.

Section 2(2) stipulates that any clause restricting liability for loss to property has to pass the "reasonableness test".

Relatively few cases are ever brought directly by consumers, given the complexity of litigation, cost, and its worth if claims are small.

The UTCCR 1999 are both broader than UCTA 1977 in that they cover any unfair terms, not just exemption clauses, but narrower in that they only operate for consumer contracts.

In DGFT v First National Bank plc[11] the House of Lords held that given the purpose of consumer protection, regulation 6(2) should be construed tightly and Lord Bingham stated good faith implies fair, open and honest dealing.

This appeared to grant a relatively open role for the Office of Fair Trading to intervene against unfair terms.

However, in OFT v Abbey National plc[12] the Supreme Court held that if a term related in any way to price, it could not by virtue of regulation 6(2) be assessed for fairness.

This controversial stance was tempered by their Lordships' emphasis that any charges must be wholly transparent,[14] though its compatibility with EU law is not yet established by the European Court of Justice, and it appears questionable that it would be decided the same under the proposed Unfair Contract Terms Bill.

[15] This act amends the law relating to the rights of consumers and protection of their interests including laying out unfair terms in contracts.