How to determine standard terms of business under UCTA
YUANDA (UK) CO v WW GEAR CONSTRUCTION [2010]
The Yuanda judgment set out some useful guidance on the Unfair Contract Terms Act 1977 (UCTA) and when the parties are to be regarded as having contracted on one party's standard written terms of business.
facts:
The parties entered into a JCT Trade Form of Contract, modified by a Schedule of Amendments supplied by G, the customer, who determined in the first instance that the JCT form of contract (as modified) would govern the relationship. Amongst other things, Y maintained that Section 3 of UCTA applied to certain provisions of the final contract. Section 3 provides that exclusions of liability for breach of contract in business-to-business contracts are only subject to the UCTA reasonableness test if the parties are dealing on one party's ‘written standard terms of business’. If the contract is freely negotiated, exclusions of liability for breach of contract are not subject to the UCTA reasonableness test.
decision:
- To constitute written standard terms of business, it must be shown that they are terms that a company uses for nearly all of its contracts of a particular type without alteration (except for filling in blanks for relevant commercial details such as the name of the customer, price etc). ‘It is the essence of such terms that they are not varied from transaction to transaction’.
- It was held that the nature and extent of any agreed alterations to the standard terms made as a result of the negotiations between the parties was the only really important factor in determining whether they had dealt on G’s ‘written standard terms of business’.
- The Judge said that if there is any significant difference between the terms proffered and the terms of the contract actually made, then the contract will not have been made on one party's written standard terms of business. The alterations to such terms which were negotiated by Y from a contractual point of view were material and could not be dismissed as just minimal changes (or de minimis). Hence, this was plainly not a case where Y had dealt on G’s standard terms. For example, Y had successfully managed to negotiate out any requirement to take out project specific PI insurance, Y had also reduced the period of delay which had to occur before it could claim damages from 4 months to 2 and the period during which Gear could delay the project without paying compensation from 6 months to 3.
- In addition, the evidence showed that few, if any, of the 30 odd trade contractors who entered into contracts with G, did so on the same terms. Even though they were each given the same original contract and Schedule of Amendments by G at the beginning of the negotiations, they had all secured different changes to the original terms put forward. This in itself showed that G did not have standard terms on which it dealt.
points to note:
- UCTA provides no guidance on what the term ‘written standard terms of business’ referred to in Section 3 means. So whether a contract is freely negotiated or on a party's standard terms is a question of fact to be decided in each individual case. Generally, this becomes an issue where a supplier puts forward its standard terms and the customer attempts to negotiate them. Case law has shown that at some point in the negotiations the standard terms will no longer be considered ‘standard’, but it is not clear when the threshold is crossed. This decision has helped to confirm how this issue can be addressed.
- It is not enough for the purposes of Section 3 that a party had established terms of business which it preferred to adopt. The terms have to be in written form before the possibility of making the relevant agreement and they have to be intended to be adopted more or less automatically in all transactions of a particular type.
- Dealing on written standard terms does not mean that every single term must have been fixed in advance, nor does it preclude negotiations as to quality or price or filling in necessary details.
- Individual clauses in a contract can constitute ‘written standard terms’, even if the rest of the agreement is openly negotiated. Limitation of liability clauses taken ‘as is’ from one party's standard terms and put into a contract by that party have been held to be subject to the Section 3 reasonableness test, even though the agreement as a whole contained parts taken from the terms of both parties and other sections of the contract had been heavily negotiated.
- If parties deal on the standard terms of a third party, for example, a trade association, they are likely to be considered ‘written standard terms’, if the party who proposes them does so as a matter of practice.
- The mere fact that negotiations have taken place is not a relevant consideration; it is the extent to which changes are made to the supplier's standard terms due to those negotiations that is important. The more significant the amendments to the standard terms, the more likely it is that the contract will be found not to be on standard written terms. If negotiations leave the terms of the standard contract effectively untouched because in reality only minor changes were made, the contract will still constitute ‘written standard terms of business’.