Trading Contracts and The Unfair Contract Terms Act.

Every party to a contract, whether they’re buying or selling, should be aware of trading laws and aspects of law that might affect them.

There are certain fundamental issues that need to be borne in mind when entering into a legally binding relationship with another party. For instance, the seller is likely to be held liable for death, injury or loss to property caused by defective products or services. This might well include design, manufacture, and marketing defects; so, it’s important to understand that everyone involved in the supply chain, be they retailer or manufacturer, can potentially be liable.

What fundamental concerns need to be addressed by parties to binding contracts?

  • It is absolutely essential to always have third party liability insurance.
  • All products must comply with the current safety regulations.
  • False descriptions are illegal.
  • It is also illegal to give misleading prices: you can’t display goods at a low price and then charge more, or claim to offer a sale price or a discount if the price has not genuinely been reduced.
  • A person may need a licence for certain types of business, for example; businesses which offer credit, other than trade credit.
  • Some businesses are subject to extra regulation, like those selling financial services, food or goods online. If you are involved in any of these sectors, then you should be aware that the Consumer Protection, (Distance Selling) Regulations 2000 place extra restrictions on telephone sales and give online buyers some extra rights.
  • It’s also vitally important to remember that if your business keeps information about individuals, including staff, on computers, you will probably need to notify the Information Commissioner. The Data Protection Act applies to all personal records – not just those on computer, and there are also special rules for any personal records held on the internet. Even if you only record basic information, such as names and addresses, you may still need to notify the commissioner, although there are exceptions to the rule.

The Unfair Contract Terms Act, 1977

Transactions between businesses are covered by the Unfair Contract Terms Act 1977 (UCTA). In general, the principle applies which states that businesses are free to enter into whatever contracts they agree between themselves. Obviously it’s incumbent on the buyer to make sure they’re happy with the contracts he or she agrees with other selling businesses. However, the Unfair Contract Terms Act places a number of restrictions on the contract terms businesses can agree to. Specifically, it lays down rules for the ways in which vendor businesses can use exclusion clauses to limit liability in certain areas:

  • Excluding liability for death or injury is not permitted in any circumstances.
  • Excluding liability for losses caused by negligence is permitted only if it is reasonable.
  • Excluding liability for defective or poor-quality goods is also permitted only it if is reasonable. Although ‘reasonable’ is not defined precisely, courts will take into account the information available to both parties when the contract was drawn up; whether the contract was in standard form, or negotiated, and whether the purchaser had the bargaining power to negotiated better terms.

What you can do about breach of contract?

Although there are certain rights that can be excluded from business contracts which cannot be excluded from consumer ones, that doesn’t mean to say a business cannot challenge something it sees as restrictive or unfair. For example if a business is being supplied with defective goods, this may not in fact may not technically be a breach of contract if an exclusion term limiting your supplier’s liability in this area has been included, but the business might still be able to challenge the exclusion clause on the grounds that it was unreasonable under the Unfair Contract Terms Act 1977.

If a supplier’s liability is not limited by reasonable exclusion clauses, and the goods are not fit for purpose are of unsatisfactory quality or don’t match the seller’s description, then businesses may be entitled under the Sale of Goods Act to reject them within a reasonable time after delivery and to recover any money they may have paid.

If a business has paid for services which have not been carried out with the reasonable skill expected, it is entitled to ask for the work to be re-done at no extra cost. If the supplier won’t do this, the business is entitled to ask another supplier to put the work right and then reclaim the cost from the original supplier. If a business agrees a price as part of a contract, it is not obliged to pay any more. If deadlines have been agreed and not met, the buyer would be entitled to compensation for any foreseeable losses he or she may have suffered.

Any business which faces problems negotiating or enforcing a contract, should always contact an experienced solicitor like Harold Stock & Co for expert professional advice. For more information on contract law contact Harold Stock & Co Solicitors on 01457 835597 or email info@haroldstock.com.

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