Unfair Contract Terms — English Law (UCTA + CRA)

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The two parallel regimes of English unfair-terms control — UCTA 1977 for B2B and CRA 2015 Part 2 for consumer contracts, reasonableness, fairness, penalties.

English law controls unfair contract terms through two parallel statutory regimes: the Unfair Contract Terms Act 1977 (UCTA) for business-to-business contracts (and some residual consumer applications), and Part 2 of the Consumer Rights Act 2015 (CRA) for consumer contracts. The two regimes overlap, complement, and occasionally conflict, and the practitioner’s first task in any unfair-terms analysis is identifying which regime — or which combination — applies.

The CRA 2015 replaced and consolidated the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) and substantially recast the consumer side of UCTA. For consumer contracts and consumer notices made on or after 1 October 2015, CRA 2015 Part 2 is the principal control on unfair terms; UCTA 1977 retains a narrower B2B and excluded-contract role. The transitional rule is straightforward: pre-1 October 2015 consumer contracts continue to be governed by the prior regime (UCTA + UTCCR); post-1 October 2015, CRA 2015 takes over the consumer side.

This page treats both regimes sequentially: UCTA 1977 first (because it remains the principal B2B control), then CRA 2015 Part 2 (the consumer regime), then the doctrinal interaction with the penalty-clause rule, and finally the implied terms regimes in goods, services, and digital-content contracts.

UCTA 1977: Business Liability and the Reasonableness Test

UCTA 1977 has a counter-intuitive title. It does not control “unfair” terms in the way a layperson might suppose; it controls (a) attempts to exclude or restrict liability, and (b) certain attempts to claim entitlement to perform substantially differently from what was reasonably expected. Its scope is business liability — defined in s.1(3) as liability arising from things done or to be done by a person in the course of a business or from the occupation of premises used for business purposes. UCTA does not generally bite on truly private, non-business transactions.

Section 2: Negligence Liability

Section 2 UCTA controls attempts to exclude or restrict liability for negligence — defined in s.1(1) to include breach of a contractual or tortious common-law duty of reasonable care or skill, and breach of the common-duty of care under the Occupiers’ Liability Act 1957.

  • s.2(1) — A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict liability for death or personal injury resulting from negligence. This is an absolute prohibition; no reasonableness defence is available. Any such clause is wholly ineffective.
  • s.2(2) — In the case of other loss or damage (property damage, economic loss), a person cannot exclude or restrict liability for negligence except in so far as the contract term or notice satisfies the requirement of reasonableness. The reasonableness test is set out in s.11 and Schedule 2.

Section 2 was substantially recast for consumer contracts by the CRA 2015: the consumer-side control of negligence exclusions is now in s.65 CRA. Section 2 UCTA retains its full bite in B2B contexts and in any consumer-context corner not captured by CRA.

Section 3: Standard-Form B2B Contracts

Section 3 UCTA applies to contracts where one party (now, post-CRA, a business — the consumer-version of s.3 was excised in 2015) “deals on the other’s written standard terms of business.” It prohibits exclusion or restriction of:

  • liability for breach of contract; or
  • a claim of entitlement to render a substantially different performance from what was reasonably expected; or
  • a claim of entitlement to render no performance at all;

except in so far as the contract term satisfies the reasonableness test. The provision applies where a business imposes its standard terms on a counterparty business; where both parties have meaningfully negotiated the terms, s.3 has no application.

The question whether a party “deals on the other’s written standard terms” is fact-sensitive. St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481 (CA) confirmed that minor adjustments to a standard set of terms do not displace s.3 — what matters is whether the bulk of the terms are imposed in their standard form. Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317 (Chadwick LJ) noted that s.3 applies even where the parties are of broadly comparable bargaining strength, but cautioned against finding clauses unreasonable in sophisticated commercial transactions where each party was legally advised — the policy of the Act is not paternalistic intervention but the policing of imposed standard terms.

Section 6 and Section 7: Sale of Goods and Analogous Supply

Section 6 UCTA controls exclusion of the implied terms in the Sale of Goods Act 1979:

  • s.13 SGA (correspondence with description)
  • s.14 SGA (satisfactory quality and fitness for purpose)
  • s.15 SGA (sale by sample)

The s.12 SGA implied term as to title cannot be excluded against any buyer (s.6(1) UCTA — absolute). The other implied terms can be excluded only in B2B contracts, and only in so far as the exclusion satisfies the reasonableness test (s.6(1A) UCTA).

Section 7 UCTA makes analogous provision for hire-purchase contracts and for other supplies of goods (hire, work-and-materials contracts), referring to the implied terms in the Supply of Goods and Services Act 1982 and the Supply of Goods (Implied Terms) Act 1973.

For consumer contracts, the implied terms in goods (and the rules on their exclusion) are now in ss.9-17 CRA — see below.

Sections 4, 5, and 8

  • s.4 — Indemnities given by a consumer in respect of another’s liability are controlled by the reasonableness test. The provision is essentially obsolete for consumer contracts following CRA 2015 but retains residual application.
  • s.5 — Manufacturers’ guarantees cannot, against the consumer, exclude liability for loss arising from defective goods of a type ordinarily supplied for private use. Now substantially overlapping with CRA 2015 implied-warranty regime.
  • s.8 — Amendments to the Misrepresentation Act 1967 s.3: a clause attempting to exclude or restrict liability for misrepresentation, or any remedy available for misrepresentation, is of no effect except in so far as it satisfies the reasonableness test of s.11 UCTA. This is the principal source of the entire-agreement clause drafting points considered in standard clauses.

Schedule 1: Excluded Contracts

Schedule 1 to UCTA excludes certain categories from various sections of the Act: contracts of insurance, contracts relating to the creation or transfer of interests in land (subject to exceptions), contracts relating to certain intellectual property rights, contracts of marine salvage or towage, charterparties (other than for time charter or demise/bareboat charter), contracts for the carriage of goods by ship or hovercraft, and international supply contracts (s.26 UCTA, where the parties are domiciled or have their respective places of business in different states and either the goods are being carried from one state to another, or the offer and acceptance occurred in different states, or delivery is to a state other than that in which the offer and acceptance occurred). International-supply exclusion is heavily used in cross-border commercial drafting.

Section 11 and Schedule 2: The Reasonableness Test

Section 11 UCTA defines the reasonableness test. A term is reasonable if “it shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.” The burden of proving reasonableness lies on the party seeking to rely on the term (s.11(5)).

Schedule 2 sets out a non-exhaustive list of guidelines for the reasonableness assessment, principally applicable to ss.6 and 7 UCTA (sale of goods, hire-purchase, other supplies):

Factor Schedule 2 reference
Relative bargaining position of the parties para (a)
Whether the customer received an inducement to agree to the term para (b)
Whether the customer knew or ought to have known of the existence and extent of the term para (c)
Whether the term excludes liability if some condition is not complied with — and whether compliance was practicable para (d)
Whether the goods were manufactured, processed, or adapted to the special order of the customer para (e)

Schedule 2 is technically applicable only to certain sections of UCTA, but courts apply analogous factors across the board.

The judicial application of the reasonableness test is fact-intensive and rarely yields tidy rules. The principal patterns:

  • Total exclusion of liability is rarely reasonable; cap clauses (limitation to a specified sum) much more often are.
  • The cap amount matters: a cap set at the contract price is generally easier to defend than a cap set at a nominal sum. Phoenix Interior Design Ltd v Henley Homes plc [2021] EWHC 1573 (TCC) confirmed that a cap clause limiting liability to the project fee was reasonable in a B2B design contract where both parties were professionally advised.
  • Notice and prominence matter — Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371 upheld a stringent limitation clause where the supplier had drawn it to the customer’s attention prior to contract.
  • Bargaining strength matters — between large commercial parties advised by lawyers, the courts are slow to find clauses unreasonable (Watford Electronics); the calculus shifts where one party is much smaller or less sophisticated.
  • Availability of insurance is a recurring theme — a clause excluding liability for losses that the customer could readily have insured against is more likely to be reasonable than a clause shifting losses that only the supplier was practically positioned to insure.

The leading B2B decisions cited above — St Albans v ICL, Watford Electronics v Sanderson, Goodlife v Hall Fire, Phoenix v Henley — illustrate the fact-sensitive approach and provide the benchmark for drafting.

Consumer Rights Act 2015 Part 2: The Fairness Test

The consumer regime is now in Part 2 of the Consumer Rights Act 2015. It applies to consumer contracts (s.61(1)) — contracts between a trader and a consumer — and to consumer notices (s.61(4)) — notices that relate to rights or obligations as between a trader and a consumer, or that purport to exclude or restrict a trader’s liability to a consumer. A “consumer” is an individual acting wholly or mainly outside their trade, business, craft, or profession (s.2(3)); a “trader” is a person acting for purposes relating to their trade, business, craft, or profession (s.2(2)).

Section 62: The Fairness Test

Section 62 CRA is the core rule:

  • s.62(1) — An unfair term of a consumer contract is not binding on the consumer.
  • s.62(2) — An unfair consumer notice is not binding on the consumer.
  • s.62(4) — A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
  • s.62(5) — Whether a term is fair is determined by reference to: the nature of the subject matter of the contract, all the circumstances existing when the term was agreed, and all of the other terms of the contract or of any other contract on which it depends.

The test is materially identical to the test under the predecessor UTCCR 1999, which in turn implemented the EU Unfair Terms in Consumer Contracts Directive (93/13/EEC). The retained EU case law continues to inform the construction of the test, subject to the post-Brexit framework.

Section 64: The Core-Terms Exemption

Section 64 CRA exempts certain “core terms” from the fairness assessment. A term cannot be assessed for fairness under s.62 to the extent that it specifies (a) the main subject matter of the contract, or (b) the appropriateness of the price payable, in either case provided the term is transparent and prominent (s.64(2)-(4)).

Transparency requires that the term be expressed in plain and intelligible language and (in the case of written terms) legible. Prominence requires that the term be brought to the consumer’s attention in such a way that an average consumer would be aware of it.

The leading authority is Office of Fair Trading v Abbey National plc [2009] UKSC 6, which held that bank charges for unauthorised overdrafts were “core terms” within the meaning of the (then-applicable) UTCCR 1999, with the consequence that their fairness in terms of price level could not be challenged. The decision provoked legislative response and the recasting of the core-terms exemption in CRA 2015 to require both transparency and prominence — the dual condition is designed to ensure that the core-terms shelter is available only for terms that the consumer has had a fair chance to engage with.

Section 65: Negligence Exclusions and Consumer Notices

Section 65 CRA prohibits a trader from excluding or restricting liability for death or personal injury caused by negligence. The provision is absolute — no fairness defence — and mirrors UCTA s.2(1) on the consumer side. Section 65(2) makes a corresponding provision for consumer notices.

Schedule 2: The Grey List

Schedule 2 to CRA Part 1 sets out an indicative and non-exhaustive list of terms which may be regarded as unfair — the “grey list” of 20 categories. They include:

  1. Exclusion of liability for death or personal injury (overlapping with s.65 — absolute);
  2. Exclusion of liability for non-performance, partial performance, or inadequate performance;
  3. Binding consumer to terms with which the consumer had no real opportunity of becoming acquainted;
  4. Trader’s right to determine retention of pre-payment if consumer cancels, without corresponding right of consumer;
  5. Excessive financial sanctions for breach by consumer;
  6. Trader’s right to dissolve contract at will, without same right for consumer;
  7. Trader’s right to terminate indefinite-duration contract without reasonable notice;
  8. Automatic extension of fixed-term contracts where consumer fails to indicate otherwise;
  9. Irrevocable commitment of consumer to terms not disclosed before conclusion;
  10. Trader’s right to alter contract unilaterally without valid reason;
  11. Trader’s right to alter unilaterally any feature of the service to be provided;
  12. Price determined at delivery without consumer’s right to cancel;
  13. Trader’s right to determine compliance with contract;
  14. Trader’s reservation of right to interpret;
  15. Limitation of trader’s obligations through agents;
  16. Obligation of consumer to fulfil obligations even if trader does not;
  17. Possibility of transfer of rights and obligations (reducing guarantees for consumer);
  18. Exclusion or hindrance of consumer’s right to take legal action;
  19. Restriction of evidence available to consumer or imposition on consumer of burden of proof;
  20. Mandatory exclusive jurisdiction in a place distant from consumer.

Inclusion in Schedule 2 is indicative, not conclusive — a term on the grey list is not automatically unfair but is liable to be unfair, and the burden of justification is in practice on the trader.

Schedule 2 Part 2 lists three categories presumed transparent and prominent for the purposes of s.64 — terms in negotiated international contracts, price-indexation clauses, and certain financial-services interest-rate variation clauses.

Section 68: Transparency Requirement

Section 68 CRA requires written consumer-contract terms to be expressed in plain and intelligible language. Section 69 supplies the contra proferentem rule for consumer contracts: where there is doubt about the meaning of a term, the interpretation most favourable to the consumer prevails.

Enforcement: CMA and Sector Regulators

Public enforcement of CRA 2015 Part 2 is led by the Competition and Markets Authority (CMA), which inherited the unfair-terms enforcement function from the OFT. The CMA can apply for an injunction (s.71 read with Schedule 3) to restrain a trader from using a term that is unfair, and routinely engages in supervisory work — published guidance, undertakings, and (where necessary) enforcement action — to police consumer-facing markets. Sector regulators (FCA, Ofcom, Ofgem, Ofwat, ICO, others) have parallel powers in their respective jurisdictions.

The leading judicial authority on the fairness test is Director General of Fair Trading v First National Bank plc [2001] UKHL 52, in which the House of Lords (in a case under the predecessor UTCCR 1999) held that a default-interest clause in a consumer loan agreement was not unfair on the test that requires significant imbalance against the consumer contrary to good faith. Office of Fair Trading v Abbey National plc [2009] UKSC 6 settled the core-terms question for unauthorised-overdraft charges (above).

The Penalty-Clause Doctrine and Liquidated Damages

A separate but adjacent doctrine controls agreed-damages clauses — clauses fixing in advance the sum payable on breach. The doctrine is rooted in equity and applies in addition to UCTA and CRA.

The traditional test was articulated in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (the 1915 House of Lords decision; date noted, not pre-1900): a clause is a penalty (and unenforceable) if the sum stipulated is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to follow from the breach, or if the sum is the same for breaches of varying gravity. The clause is a (lawful) liquidated-damages clause if it is a genuine pre-estimate of loss.

The doctrine was fundamentally restated by the Supreme Court in Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67 (heard together). The new test is whether the clause “imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.” Key features of the restatement:

  • The focus shifts from “genuine pre-estimate of loss” to “legitimate interest”. An agreed-damages clause can be enforceable even if it exceeds the likely actual loss, provided it protects a legitimate interest (commercial, reputational, deterrent) and is not extravagant relative to that interest.
  • The doctrine applies only to secondary obligations (i.e. obligations triggered by breach). It does not apply to primary obligations or to bona-fide price provisions.
  • The doctrine applies equally in B2B and B2C contexts, but B2C contexts will also be tested under the CRA fairness regime — in ParkingEye v Beavis itself, the £85 parking-overstay charge was held neither a penalty (legitimate interest in efficient car-park management protected) nor unfair under the UTCCR 1999.

For drafters, the practical consequence is that liquidated-damages clauses are easier to defend post-Cavendish provided the clause is rationally connected to a legitimate interest. Random or punitive sums remain at risk.

Implied Terms in Goods, Services, and Digital Content

The unfair-terms regimes operate against the backdrop of statutory implied terms that supply substantive minimum standards.

Consumer Contracts: CRA 2015 Part 1

Part 1 of the CRA 2015 supplies the consumer-side implied terms and remedies regime:

  • Goods (ss.9-17) — satisfactory quality (s.9), fitness for particular purpose (s.10), description (s.11), pre-contract information (s.12), sample (s.13), bulk (s.14), instalments (s.15), trader’s right to supply (s.17). Remedies: short-term right to reject (s.20), repair or replacement (s.23), price reduction or final right to reject (s.24).
  • Digital content (ss.34-37) — satisfactory quality (s.34), fitness for particular purpose (s.35), description (s.36), other pre-contract information (s.37). Remedies: repair or replacement (s.43), price reduction (s.44), damages (s.46).
  • Services (ss.49-53) — reasonable care and skill (s.49), information about the trader binding (s.50), reasonable price (s.51), reasonable time (s.52). Remedies: repeat performance (s.55), price reduction (s.56).

These implied terms cannot be excluded to the consumer’s detriment (s.31 for goods, s.47 for digital content, s.57 for services). The exclusion bar is essentially absolute — it operates as a substantive minimum standard rather than a fairness test.

B2B Contracts: SGA 1979, SGSA 1982, SoGITA 1973

For B2B contracts, the implied terms are in:

  • Sale of Goods Act 1979 — ss.12-15 (title, description, satisfactory quality and fitness for purpose, sample). Modified by the Sale and Supply of Goods Act 1994 and other Acts. Exclusion controlled by UCTA s.6 (absolute for title, reasonableness for the others).
  • Supply of Goods and Services Act 1982 — ss.2-5 (analogous implied terms for non-sale supply of goods); ss.13-15 (reasonable care and skill, reasonable time, reasonable charge in services contracts). Exclusion controlled by UCTA s.7 and s.16 SGSA respectively.
  • Supply of Goods (Implied Terms) Act 1973 — implied terms in hire-purchase. Exclusion controlled by UCTA s.7.

Practical Drafting Implications

The drafting consequences of the two regimes converge on a small set of recurring moves:

  • Limitation-of-liability clauses in B2B contracts should be drafted with the reasonableness test in mind: prefer caps over total exclusions; tie the cap to the contract price or a multiple of it; carve out death/personal injury, fraud, fraudulent misrepresentation, and any statutory implied terms that cannot be lawfully excluded.
  • Consequential-loss exclusions rely on the narrow English meaning of “consequential” — see Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] 1 All ER (Comm) 750: “consequential” in the English sense generally means losses falling within the second limb of Hadley v Baxendale. To exclude broader categories, drafters use the device of listing categories (loss of profit, loss of revenue, loss of business, loss of goodwill, loss of anticipated savings, loss of opportunity, loss of data) explicitly.
  • Entire-agreement clauses do not by themselves exclude misrepresentation liability — see AXA Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133. To exclude misrepresentation liability, the clause must say so explicitly, and the exclusion is then subject to the reasonableness test under UCTA s.8 / s.3 Misrepresentation Act 1967.
  • Consumer-facing clauses must satisfy the s.68 transparency requirement, must not feature on the Schedule 2 grey list in any unfair form, and must respect the absolute prohibition in s.65 on excluding negligence-caused death or personal injury.
  • B2B set-off clauses are subject to the reasonableness test where they exclude the customer’s set-off rights — Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600 (a no-set-off clause in a B2B sale-of-machinery contract held unreasonable on the facts).

Bibliography

Statutes (legislation.gov.uk)

Case law (bailii.org / supremecourt.uk)

  • St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481
  • Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317
  • Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371
  • Phoenix Interior Design Ltd v Henley Homes plc [2021] EWHC 1573 (TCC)
  • Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600
  • Director General of Fair Trading v First National Bank plc [2001] UKHL 52
  • Office of Fair Trading v Abbey National plc [2009] UKSC 6
  • Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67
  • Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] 1 All ER (Comm) 750
  • AXA Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133

Regulatory guidance

Cross-references

Disclaimer: This content is informational, not legal advice. Last verified: 2026-05-11. Always consult a solicitor admitted to practise in England and Wales for binding decisions.

Further Reading