Applying the Unfair Contract Terms Act 1977 to construction contracts

United Kingdom
Victoria Peckett reviews some recent cases

Moores v Yakeley concerned the application of UCTA to the RIBA standard form of appointment for architects (SFA 92 version). The Moores engaged Yakeley as an architect in respect of the construction of a bungalow in County Clare, Eire. Relations between the parties deteriorated (although the reason for this is not clear from the judgment) and the Moores sought damages for breach of contract and the recovery of £132,680 in restitution as money paid under a mistake of fact from Yakeley.

Questions arose as to whether the contract between the parties incorporated the terms of SFA 92 (particularly Clause 6, which, if it applied, would impose restrictions on Moores’ right of recovery,) whether the limitations in Clause 6 applied to all Moore’s pleaded claims and whether Clause 6 satisfied the relevant “reasonableness” test under UCTA. These issues came before the Honourable Mr Justice Dyson for decision as preliminary issues.

Judge Dyson decided that, on the evidence, the contract between the parties did incorporate Clause 6 of SFA 92. He also rejected Moore’s argument that Clause 6 only applied to claims for damages for breach of contract (and did not apply to its claim for restitution) and held that Clause 6 did apply to all Moore’s claims. Moores could have pleaded its claim for restitution as a claim for breach of contract and Moores could not avoid the limitations in Clause 6 simply by choosing to plead its claim on an alternative ground.

The question then arose as to whether Clause 6 of SFA 92 satisfied the “reasonableness” test for the purposes of Section 3 of UCTA. Under Section 3, in contracts where one party is a consumer or the parties are trading on one party’s written standard terms of business, clauses excluding or restricting the consumer’s (or the party who accepted the other’s standard terms) recovery for breach of contract by the other party are only valid if they can be shown to be “reasonable”. It was common ground between the parties that Moores was a “consumer” for the purposes of UCTA and Section 3 therefore applied. Judge Dyson decided that Clause 6 was reasonable for the purposes of Section 3 and in reaching that decision appears to have been influenced primarily by the fact that Moore’s bargaining position in negotiating the contract was much stronger than Yakeley’s.

In British Fermentation Products Limited v Compair Reavell Limited, British Fermentation was claiming damages from Compair for breach of a contract for the supply and installation of an air compressor. The parties eventually agreed that the contract included the terms of the Institution of Mechanical Engineers Model Form General Conditions of Contract Form C (1975 edition as amended in September 1978). This form contains a clause (Condition 11) which limits the purchaser’s rights of recovery.

Again, questions arose as to whether UCTA applied to the contract at all and, if it did, whether Condition 11 satisfied the reasonableness test. They were tried as preliminary issues before His Honour Judge Bowsher QC.

It was clear that British Fermentation was not a consumer for the purposes of UCTA. As a result, the relevant Section of UCTA (Section 3) could only apply if the parties were trading on Compair’s “written standard terms of business”. Judge Bowsher considered this issue and held that one essential condition for the application of Section 3 was proof (either by way of an express statement by Compair or by way of evidence of Compair’s practice) that the Model Form Conditions were “invariably or at least usually used” by it. There was a letter from Compair in evidence which stated that the Defendant made “extensive” use of the Model Form but Judge Bowsher held that this was not sufficient. He therefore found that Section 3 UCTA did not apply.

However, he went on to consider whether, if UCTA applied, Condition 11 would be reasonable. He held that it would have been reasonable given the parties’ relative bargaining positions (he found that they were equal) and the other remedies available to British Fermentation under the Contract.

The judgment in British Fermentation notes that Counsel for British Fermentation expressed concern at the prospect of UCTA applying to standard forms of contract drafted by industry bodies. The judgment makes it clear, however, that this is not objectionable in principle although, where the Claimant is not a consumer, it will be very difficult to show that the relevant standard form is invariably or usually used by the Defendant and as a result, in practice, Section 3 of UCTA will rarely apply.

It is also interesting to note that, in both cases, the relevant terms were held to be reasonable for the purposes of UCTA (although each case will need to be judged in the light of its own facts).

Despite these difficulties, these cases have brought UCTA into the limelight again. Parties bringing claims may be more ready to argue that clauses in standard forms of contract which restrict liability are not enforceable because of the provisions of UCTA.