This article is the second of a two part note on the decision in Yuanda v WW Gear. It deals with reasonableness under the Unfair Contract Terms Act 1997 (UCTA 1977). Part one (which can be found here), deals with the late payment of interest under the Late Payment of Commercial Debts (Interest) Act 1998. It also contains a summary of the case facts and the issues raised.
What did the judgement say?
As summarised in more detail here, WW Gear Construction Limited (Gear) substituted the standard adjudication provisions in the JCT standard form building contract for its own adjudication clause. The substituted clause was favourable to Gear and was not spotted by Yuanda during contract negotiations. Yuanda (UK) Co Limited (Yuanda) requested that the court declare the substituted clause invalid as it was contrary to the reasonableness test in section 3(1) of UCTA 1977. It argued that section 3(1) applied to the contract because Yuanda dealt on Gear's written standard terms of business.
The court observed that section 3 of UCTA 1977 applied to a contract where one of the parties dealt as a consumer or on "the other's written standard terms of business". It held that terms and conditions were standard where the company in question used them for all, or nearly all, of its contracts of a particular type without alteration (apart from blanks which had to be completed showing the price, name of the counterparty and so on). That is, the conditions should remain unchanged from transaction to transaction. The court held that the most important factor in deciding whether terms were "standard" was the extent and nature of any agreed alterations to those terms made as a result of the negotiations between the parties. If there was a significant difference between the terms proffered and the terms of the contract actually made, then the contract could not be said to have been made on one party's standard terms of business.
The court held that the alterations negotiated by Yuanda were contractually material and that Yuanda had not dealt on Gear's written standard terms of business because:
- Yuanda negotiated several material alterations to Gear's schedule of amendments;
- the reference to "dealing" in section 3 of UCTA 1977 is to the performance of the contract, not to its negotiation; and
- few (if any) other trade contractors entered into contracts with Gear on the same terms. The evidence showed that nearly all of them, during the pre-contract negotiations, altered the schedule of amendments put forward by Gear. This showed that Gear did not have standard terms on which it could be said to "deal" with its contract counterparties. Whilst Gear's proffered terms may have been standard, the terms of the final agreement were not.
The court concluded that Yuanda did not deal on Gear's written standard terms of business for the purposes of section 3 of UCTA 1977, therefore the requirement of reasonableness in section 3 did not apply. The court added that Yuanda had sufficient notice of the amendments to the adjudication clause and that the amendments were "there to be seen by any careful reader of the schedule".
Why is the case important?
This part of the decision provides useful guidance and analysis on the factors to consider when determining whether the counterparties have contracted on one party's written standard terms of business. It is also a useful reminder to businesses who contract on standard terms that the provisions of section 3 of UCTA 1977 will apply to those standard terms and that particular attention should be paid to the performing party's liability for breach and its obligations to perform under those standard terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
