Misrepresentation, Non-Disclosure and Breach ... - Law Commission

8.57 In other areas of commercial life, businesses are given protection against unfair
terms by sections 3 and 17 of UCTA. However, these sections do not apply to
insurance contracts. It was suggested that the problems of defining when a
causal connection should be required could be avoided by adapting sections 3
and 17 so as to apply to standard terms that have the effect of restricting the
cover.
8.58 The test we are now proposing is more limited than the UCTA test, as it does not
consider the substance of the term – only whether enough was done to bring it to
the insured’s attention. It would therefore be more accurate to label this approach
as a “reasonable expectations” approach rather than an “unfair terms” approach.
The Unfair Contract Terms Act 1977, sections 3 & 17
8.59 In England and Wales, section 3 subjects certain clauses to a requirement of
reasonableness. It applies between contracting parties where one of them deals
as a consumer or on the other’s written standard terms of business. Section
3(2)(b) prevents the party who wrote the standard terms of business from
claiming to be entitled
(i) to render a contractual performance substantially different from
that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to
render no contractual performance at all, except in so far as… the
contract term satisfies the requirement of reasonableness.
8.60 In Scotland, the issue is dealt with by section 17, which enacts the same
substantive provision, using slightly different words. It provides that a term in a
consumer contract or standard form contract “shall have no effect for the purpose
of enabling a party to the contract…
(b) in respect of a contractual obligation, to render no performance, or
to render a performance substantially different from that which the
consumer or customer reasonably expected from the contract
if it was not fair and reasonable to incorporate the term in the
contract.
8.61 In February 2005, the two Law Commissions produced a joint report and draft Bill
to amend the law of unfair contract terms. We did not suggest any substantive
reform of these sections. However, we recommended that they should be
replaced as a single section to apply to the whole of Great Britain, written in
clearer language. 20
20 Clause 9(3) of our draft Bill applies where one party to a business contract (“A”) deals on
the written standard terms of business of the other (“B”). It states that:
Unless the term is fair and reasonable, B cannot rely on any of those terms to
claim it has the right –
(a) to carry out its obligations under the contract in a way substantially different
from the way in which A reasonably expected them to be carried out, or
(b) not to carry out all or part of those obligations.
198