Insurance Contract Law Issues Paper 2 Warranties - Law Commission

8.6 Here we begin by outlining the effect of sections 3 and 17 of UCTA on other
types of commercial contract. We then consider the arguments for and against
extending this protection to commercial insurance.
THE UNFAIR CONTRACT TERMS ACT 1977, SECTIONS 3 & 17
8.7 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.
8.8 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 a contract…
(b) in respect of a contractual obligation, to render no performance, or
to render a performance which is 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.
8.9 In February 2005, the two Law Commissions produced a joint report and draft Bill
to amend the law of unfair contract terms. As far as sections 3 and 17 are
concerned, we did not intend to make any substantive changes in the law.
However, we aimed to produce a single section to apply to the whole of Great
Britain, written in clearer language. Clause 9(3) of the 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.
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