Fair and Reasonable Contract Terms
Fair and reasonable contract terms are enforced by the Unfair Contract Terms Act 1977 (UCTA).3 min read
2. UCTA and Commercial Contracts
3. Criticisms of the UCTA
Fair and reasonable contract terms are enforced by the Unfair Contract Terms Act 1977 (UCTA). The UCTA restricts the limit businesses can place on potential liabilities when creating commercial contracts. The UCTA focuses on the contractual provisions and notices that limit or exclude liability. This also includes noncontractual terms and is designed to avoid stretching common laws that are in place. Any business relying on the contract terms to assess liability should review the UCTA prior to any challenge made in the court system.
Section 11(1) of UCTA states that the contract term must be "... 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" to meet the reasonableness test. Additionally, the UTCA Schedule 2 includes extra guidelines to offer factors that may help determine reasonableness.
Recommendations for Drafting Fair and Reasonable License Terms
The license agreement should be drafted in the same manner as a patent license agreement. Using someone who is experienced and specializes in contract drafting is recommended as part of the negotiating team. When you begin drafting the terms, follow these recommendations when drafting fair and reasonable licensing terms:
- Collaborate with technical and patent attorneys to determine what patents need licensing.
- Comply with the rules of the standards-setting body.
- Be reasonable when drafting and negotiating the license agreement so the terms stand up in court.
- Remove any term that expects that it must be included in the license agreement. This can be seen as unfair and unreasonable.
- Add simple to understand terms when explaining royalties.
- Agree to as many terms as possible to avoid court involvement and decisions.
The terms should be written in a clear, modern style and meet the standard of the law and jurisdiction of the contract. Template license agreements follow this same rule. Don't use a U.S. template for a U.K. contract agreement. If the parties involved draft the contract without court involvement, there is a higher chance that the terms will be seen as fair, reasonable, and nondiscriminatory.
UCTA and Commercial Contracts
The UCTA has the potential to affect commercial contracts in terms of negligence and misrepresentation. Negligence is expressed in section 2(2) of UCTA that a "party cannot exclude or restrict liability for negligence except insofar as the term satisfies the requirement of reasonableness." However, a provision which attempts to exclude or restrict liability for death or personal injury resulting from negligence will always be ineffective.
Misrepresentation stated in UCTA (section 3 of the Misrepresentation Act 1967) is described as "a contract term which excludes or restricts liability for pre-contractual misrepresentation or any remedy available for such misrepresentation shall have no effect except insofar as it satisfies the requirement of reasonableness set out. Exclusions of liability for fraudulent misrepresentation are void on public policy grounds."
Criticisms of the UCTA
The Unfair Contract Terms Act 1977 (UCTA) and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) are two pieces of legislation that help determine unfair contract terms. By some, the UCTA is considered a sign of progress in contract law and the effectiveness of exemption clauses. However, there are flaws which have caused criticism. The UCTA is supplemented by the Unfair Terms in Consumer Contracts Regulation (UTCCR), which is disliked for its confusing language.
On the surface, the two pieces of legislation offer a way to battle contract terms that are considered unfair. In practice, they are more likely to cause the interpretation of the laws to vary and, therefore, make it hard to define the law. The UCTA does not cover all exemption clauses. This results in a conceptual hole where an exemption clause and an obligation negate each other and, therefore, no final determination can be made when questioned.
Under UCTA, attempts to exclude implied conditions in business contracts are completely void. Whereas, under UTCCR, the regulations differ by applying a fairness test and it does not bind the consumer if any unfair terms exist and no terms are ever considered ineffective under the regulations.
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