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Unfair contract revision offers the chance to win back trust

legal matters

Philip Britton's recent talk to the Society of Construction Law in May 2004 bore the catchy title 'The Architect, the Banker, his Wife and the Adjudicator' 1.Behind that cinematic facade lay much weighty thought on the topic of unfair contracts, a paper about which won the director of the Centre of Construction Law at King's College London last year's prestigious Hudson prize.

The link between the topic and the title is the case of Picardi v Cuniberti (AJ 6.3.03), in which the court considered whether Mr Cuniberti (a banker) and his wife were bound by an adjudicator's decision in favour of Mr Picardi, their architect. Britton used this and two others (Lovell v Legg and Carter, AJ 4.3.04, and Westminster v Beckingham, AJ 1.4.04), as a starting point for his examination of unfair contract terms legislation and the construction industry.

He concluded that the legislation has more relevance to construction than might at first be thought.What is more, it may be due for a shake-up, following the Law Commission's recent consultation paper. This may result in provisions being extended to cover business-to-business (B2B) transactions, as well as business-to-consumer (B2C). Britton suggested that there is potential for unfair contract controls to benefit new collaborative ways of working, as well as closing the 'enormous gulf of distrust between domestic clients and the supply side for house building, refurbishment and repair'.

So what is the present unfair contract regime? It arises under two quite separate and different bits of legislation.

First is the home-grown Unfair Contract Terms Act 1977 (UCTA), which focuses on limitation or exclusion clauses. For example, any clause that restricts liability for causing death or personal injury is struck down by the Act and so cannot be relied on. The Act deals mainly with exclusions in the context of 'business liability'. In some instances the restriction only operates in relation to B2C contracts; in others to both B2C and B2B.

Second is the European-nurtured Unfair Terms in Consumer Contracts Regulations 1993, applying only where one party is a consumer, also by striking down unfair terms. It was UTCCR that came into play in the adjudication cases.

As might be expected of two pieces of legislation of such differing provenances and dates, the overall regime is neither comprehensive nor straightforward. The Law Commission has suggested replacing UCTA and UTCCR with a single statute. Its final report is expected this year, and we shall have to wait and see to what extent its proposals extend to B2B transactions and, if so, whether only to smaller businesses.

What sort of provisions in construction-related contracts might potentially fall foul of unfair contract legislation? As well as the fairness of adjudication provisions, the court has considered the status of an arbitration clause in an NHBC contract. Provisions that limit or exclude legal rights that might otherwise be available may be unfair. These could include the right to set off counterclaimed sums; contractually fixing a claim period shorter than the statutory limitation period, and; excluding entitlement to consequential losses that might otherwise be available. Within the confines of a contract itself, restricting liability to the other party, for example, by the use of a capping figure, may be unfair.So too might be a provision that deems that a written agreement embodies an entire contract, preventing parties relying on precontractual representations.

It can be seen that many aspects of contracts in the construction industry, including parts of some standard forms, may already be potentially caught by the unfair contract legislation.

Picardi illustrated that professional forms of appointment can come under the spotlight. As the Law Commission's proposals move forward, we may see lobbying from groups anxious to limit restrictions on their ability to contract how they please. Such interests need to be balanced against the laudable aims of encouraging new ways of working and improving confidence in the construction industry.

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