Contract Law Lecture 5

PART I – Unfair Terms (Cont’)

House of Lords:
Lords Bingham, Steyn, Hope, Millett and Rodger
o This case concerned fairness of a term in a standard form regulated credit agreement that on
default interest was chargeable after judgment as well as before.
o The House of Lords emphasised that Regulation 6 should be interpreted restrictively,
o There is a difference between “ancillary” and “core” terms:
o terms “ancillary” to the “core” of the bargain should still be subject to assessment for
fairness.
o If Reg.3(2) was to be so widely construed that such a term fell within the ambit of a core term
it would defeat the purpose of Council Directive 93/13.
o Consequently, the term had to satisfy the fairness requirements contained in Reg.4 of the
Regulations;
o BUT, having regard to the context of the agreement, the term did not cause a significant
imbalance in the parties' respective rights and obligations and therefore was not unfair for the
purposes of Reg.4.
o In assessing the fairness of a term under Reg.4, the court was required to consider whether the
supplier had dealt openly and fairly. In cases like the instant case concerning the provision of
credit, a borrower would accept that a lender would not lend if it might not be able to recover
all its principal and interest.
o First Direct's standard agreement set out the nature of the borrower's obligations clearly and
unambiguously.

Reflections
o A more literal approach to the interpretation of the Regulations than is perhaps desirable.
o The trial judge and Court of Appeal both emphasised that the purpose of the Directive, and
thus the Regulations, was to ensure adequate consumer protection.
o A pertinent principle, not expressly articulated by any of the judges but latent in the judgments
of the lower courts, is that of “unfair surprise”in relation to such terms

Abbey National v OFT

o Are unplanned overdraft fees in bank’s standard contract core terms outside of the scope of
UTCCR?
o Are the terms part of the essential bargain between bank and client - the price or remuneration,
as against the services supplied in exchange"
o OFT wanted to investigate
o The banks contended that any such investigation would be circumscribed by the provisions of
reg.6(2).
o Court not considering whether charges were fair but whether they were regulated
o CA ([2009] EWCA Civ 116) Ancillary in nature: Consumers much less likely to take into
account terms which will only apply in certain circumstances

Supreme Court [2010] 1 A.C. 696

Lord Phillips; Lord Walker; Lady Hale; Lord Mance; Lord Neuberger
o SC came to opposite conclusion.
o Bank charges levied on personal current account customers in respect of unauthorised
overdrafts constituted part of the price or remuneration for the banking services provided
within the meaning of the UTCCR 1999 reg 6(2)(b)
o The regulation contained no indication that only an "essential" price or remuneration was
relevant. Any monetary price or remuneration payable under the contract would naturally fall
within the language of the regulation.
o The Court of Appeal had gone too far in interpreting the language of the Directive and the
Regulations
o As a result the Office of Fair Trading was not entitled to assess the fairness of such charges.
o The only question for the court when applying Regulation 6(2)(b) is whether the term in
question relates to any part of the contractual consideration.

Reflections…
o This approach has the advantage of absolving the courts from difficult questions regarding
what is merely “ancillary”, but greatly expands the scope of Regulation 6, thereby reducing the
amount of protection given to consumers.
o The Supreme Court was content to allow a less restrictive interpretation of Regulation 6 since
it identified the purpose of the Regulations not to be consumer protection but rather consumer
choice.
o Very literal interpretation
o OFT has now stated that it will not pursue its investigation further: (OFT 1154, Personal
Current Accounts - Unarranged Overdraft Charges: Decision on an investigation under the
UTCCRs and next steps (December 2009)
o Now favours legislative intervention
o Lord Walker noted that it is open to the legislature to afford greater rights to consumers, and
that other European countries, notably Germany, have chosen to do this.

In conclusion
o The law regarding unfair terms in English law generally is something of a mess and can be
difficult for consumers to understand
o The co-existence of the Regulations and the Unfair Contract Terms Act 1977 is unnecessarily
complicated.
o A helpful first step would be to adopt the Law Commission's Report, Unfair Terms in
Contracts (Law Com. No. 292 (2005).

So what?
o UCTA is better for claimant is clause is one which will always be treated as invalid
o UCTA is as good as UTCCR is the clause is subject to reasonableness test under UCTA or
unfairness test under UTCCR
o More certainty about what is unfair under UCTA?

PART II – Misrepresentation
Mere representations and mere puff
The Contract

Express terms
Implied terms

Regulation of misrepresentations
o Contract
o Tort
o Restitution

Key concepts
o Generally no positive duty to disclose information in pre-contractual negotiations
o Negotiators can disclose as little or as much information as they wish and can act without good
faith
o BUT if a party states an inaccurate fact in pre contractual negotiations they may be liable for
misrepresentation

Walford v Miles [1992] 1 All ER 453 per Lord Ackner

“The concept of a duty to carry on negotiations in good faith is inherently repugnant to the
adversarial position of the parties when involved in negotiations. Each party is entitled to pursue
his interest, so long as he avoids making representations”

Example: Turner v Green [1895] 2 Ch 205

o In a preliminary hearing the Chief Clerk of London made it clear to the claimant’s solicitor that
he had a weak case.
o Claimant’s solicitor then settled the case with the defendant’s solicitor without disclosing this.
o The settlement was upheld
o No precontractual duty to disclose

Exceptions
o Contracts involving utmost good faith e.g., insurance
o Fiduciary relationships

Justifications for this approach

o Laissez faire/competitive ideology
o Increases market efficiency by allowing the parties to negotiate freely without legal regulation
o Encourages free exchange of information

Historical roots of misrepresentation

o Development of the doctrine in late c19th was one of the first signs of a shift from the high
water mark of laissez faire (Atiyah)
o Evolved from the tort of deceit and attempted to tackle extravagant or unjustified assertions
o Now governed by a mixture of common law, equity and statute

What is a misrepresentation?
o An unambiguous false statement
o Made in pre-contractual negotiations
o Which does not become a term but
o Induces the other party to enter into the contract

a) Statement?
o It must be a statement of fact not opinion
o Sales talk and opinions must be distinguished from other statements made in the course of
negotiations
o The other party may have a different opinion
o They do not have to agree
o They can make their own assessment

Example: Bisset v Wilkinson [1927] AC 177, PC

o Sellers of land told buyers that the land in New Zealand would support 2000 sheep
o The buyer knew that the seller had never used the land for sheep farming
o The seller had no special knowledge and the court treated this as an opinion

But the boundaries are not always clear

o A statement of opinion can imply that a person knows something that justifies that opinion
o Smith v Land House Property Corporation [1884] 28 ChD 7: ‘…if the facts are not equally
known to both sides then a statement of opinion by the one who knows the facts best involves
very often a statement of material fact, for he impliedly states that he knows facts which justify
his opinion’ Per Bowen LJ.

b. Statement?
o Is misrepresentation confined to words?
o A nod or putting of a false label on a product may constitute a misrepresentation
o But mere silence is generally not enough: ‘…the passive acquiescence of the seller in the self-
deception of the buyer will not entitle the latter to avoid the contract’.
o Approach reflected in the maxim Caveat emptor
o The buyer is expected to ask about all pertinent aspects of the transaction and it is not for the
seller to say things that will put them off

c. Statement?
o What happens if a party makes a statement which is only a half truth?
o What is left unsaid may amount to a representation
o In Dimmock v Hallett (1866) seller of land told potential buyer that the land was let but not
that the tenants were about to leave. This had an impact on income.
o Held to be a misrepresentation
The statement must induce
o The statement must be one of the reasons the party trying to set the contract aside entered into
the contract
o Does not have to be sole reason
o Must show actual and reasonable influence: Pan Atlantic [1994] 3 All ER 961

Attwood v Small (1838)

o Owners of a mill made exaggerated claims
o Purchaser had these checked out by their surveyors
o Surveyors incorrectly said the claims were true
o Court decided that the purchasers had not relied on mill owners misrepresentation because they
had paid others to check its validity

Redgrave v Hurd (1881) 20 ChD 1 CA

o Elderly solicitor told an incoming partner that the firm made £300 a year.
o He produced papers which, if read, would have revealed the true position
o New partner did not read
o CA held new partner was entitled to set aside the contract
o It was no defence to say that he was negligent in not reviewing the papers