UNFAIR CONTRACT TERMS BILL

HL Deb 23 May 1977 vol 383 cc1100-38

3.54 p.m.

Lord JACQUES

My Lords, I beg to move that this Bill be now read a second time. It is concerned with those exemption clauses in contracts and notices which seek to exclude liability for negligence and breach of contract. It is based upon studies made by the Law Commission and the Scottish Law Commission, which were extended over a period of 10 years. The Commissions submitted a First Report, and that was implemented by the Supply of Goods (Implied Terms) Act 1973. This Bill seeks to implement the Second Report of the Commissions. The Bill comes to us with all-Party support from the other place, and I hope that it might leave us in the same way.

I would pay tribute—and I am sure that noble Lords will join me—to the thoroughness of the work of the Law Commissions. I would also congratulate my honourable friend Mr. Michael Ward, the Member for Peterborough, who sponsored and piloted the Bill through the other place. I would also personally thank my noble and learned friend the Lord Chancellor and my right honourable friend the Secretary of State for Prices and Consumer Protection and their staffs, for the help that they have given me in connection with this Bill.

The Commissions were in agreement as to the controls that were needed, but they differed as to the scope of their operation and, in some respects, as to the methods of their application. There have, however been widespread consultations since the Second Report of the Commissions, by the Department of Prices and Consumer Protection. They have consulted with more than 300 organisations in the legal profession, in commerce and industry and in consumer affairs, as well as the Office of Fair Trading and Government Departments. In consequence, to some extent this Bill is based upon the results of those consultations.

The Bill is in three Parts. The first Part amends the law in England and Wales and Northern Ireland; the second Part amends the law in Scotland to the same effect, and the third Part provides miscellaneous clauses which apply to the United Kingdom as a whole. Clause I deals with the scope of Part I. It covers matters in which the Commissions were in agreement, and matters in which they were not in agreement. They were agreed that negligence includes not only breach of Common Law duty of care, but also breach of any contractual duty of care, whether express or implied, and any breach of duty of care imposed by the Occupiers' Liability Act. Secondly, they were agreed that the controls should apply to business transactions only, except in the case of the sale of goods where they already apply to business and private transactions. Thirdly, they were agreed that the controls should apply whether or not the breach is intentional, and whether it arises out of the party's own act or the act of someone for whom he is responsible, such as an employee. In consequence of the agreement between the Commissions on these points, the clause follows that line.

However, the main divergence of view of the Commissions was on the overall scope of the Bill. The Law Commission took the view that the controls should not be restricted to particular classes of contract. The Scottish Law Commission took the view that it should be restricted to four classes of contract: first, contracts for the supply of goods; secondly, contracts of service and apprenticeship; thirdly, contracts for services and insurance and, fourthly, licences to enter or use land. In particular, the Scottish Law Commission suggested that the controls should not apply to the transfer of ownership or possession of land, and to other aspects of commercial and company law, without further consultations.

The majority of those bodies that had been consulted favoured the Scottish line—that is, restricted scope for the controls. It was suggested that by this restriction the consumer would not be disadvantaged. For example, when there is a transfer of the ownership of land, that is an occasion when the consumer usually has legal advice at his elbow.

Clause 1 and Schedule 1 therefore follow the Scottish line. Indeed, their restriction goes a little further than the Scottish line. They exclude insurance. Also they exclude commercial maritime transactions in respect of negligence which results in property damage and also in respect of breach of contract. The principal reason for these two exclusions is that they would handicap our traders in international competition. However, there was another reason in the case of insurance. Investigations showed that to apply the Bill to insurance would result in an excessive cost being paid by the consumer without any commensurate advantages. Consequently, the Bill excludes insurance, but in its place a code of practice has been negotiated between the Department of Trade and the insurance industry. Therefore by this voluntary effort some restrictions will be placed upon insurance companies.

Clause 2 deals with the controls on exclusion or restriction of liability for negligence. This is the heart of the Bill. The Commissions said that these exemption clauses were in many cases a social evil and that the case for greater control was unanswerable. They recommended a complete ban in four areas where negligence results in death or personal injury; first, contracts of employment; second, contracts concerning travel by air, sea, road and rail; third, lifts and escalators and fairground equipment; and fourthly, the use of car parks. However, they recognised that there would inevitably be other areas where the control should apply and they recommended that the Bill should have order-making powers so that its scope could be extended.

Representations received by the Department have shown a general feeling that there are many other areas where there is reliance on the care and skill of the other party. There is also a good deal of scepticism on the cumbersomeness of order-making powers. It is pointed out that these powers have not been very effective in the application of the Fair Trading Act 1973. The Office of Fair Trading, the National Consumer Council and the Consumers' Association all favoured a complete ban, except where international Convention, to which the United Kingdom was a party, provided otherwise. The Bill therefore provides accordingly; that is to say, where the negligence results in death or personal injury the exclusion clause will be void. Where the damage is other than death or personal injury, an exemption clause will be subject to the reasonableness test.

Clause 3 is in accordance with the Commissions' recommendations. Clauses evading liability for breach or lack of performance are subject to a reasonableness test, but only where the other party is a consumer or the contract is in written, standard terms. The latter provision is intended to protect the small businessman who is often just as vulnerable as the consumer himself.

Clause 4 deals with indemnity clauses. A particularly iniquitous example of indemnity clauses is the one which is often found on the back of cross-Channel car ferry tickets. Here, the customer is required to indemnify the shipowner against damage to third parties resulting from the negligent handling of the car by the ship's crew. Clause 4 provides that where the other party is a consumer, the clause, whether in relation to negligence or breach, will be subject to a test of reasonableness.

Clause 5 implements the recommendations of the Commissions that a guarantee by manufacturers or importers of consumer goods shall not exclude liability for negligence. For convenience, Clause 6 restates the controls which already apply to contracts for the sale of goods and hire purchase. However, the Commissions took the view that there should be similar controls in the case of hire of goods, contracts for work and materials and the exchange of goods. These similar controls are provided in Clause 7.

I come now to the reasonableness test. Clause 8 replaces the test in the Misrepresentation Act 1967 with the test which is in the Bill. Clause 9 modifies the doctrine of fundamental breach to take account of the operation of the reasonableness test where there is a serious breach of contract and the innocent party either repudiates or reaffirms. An exclusion clause which, by the Bill, is not subject to the reasonableness test will nevertheless be subject to that test.

Clause 10 sets out the test itself. Here there was a fundamental disagreement as to whether all the circumstances should he taken into account or only those matters within the contemplation of the parties when the contract was made. The latter view has been taken in framing the clause, on the grounds that this will lead to less uncertainty. Guidelines for the application of the reasonableness test to contracts for the supply of goods are in Schedule 2. By an Amendment in Committee in the other place, the burden of proof of reasonableness is on the party which relies upon it.

Clause 11 defines "dealing as a consumer". Clause 12 seeks to prevent the evasion of the controls in the Bill. Clause 13 gives interpretations of the terms which are used in Part I of the Bill. Clauses 14 to 23 make the necessary amendments to the law of Scotland so that it will apply there with equal effect as it does in England, Wales and Northern Ireland. Clause 24 excludes from the controls contracts for the international supply of goods. Clause 25 prevents evasion by choice of a foreign law but it allows foreigners to use the United Kingdom law without the controls, if they so wish. Clause 27 disapplies the controls to terms which are authorised or required by present legislation and disallows the controls in relation to terms Which comply with international conventions to which the United Kingdom is a party.

Clause 26 provides interim arrangements for dealing with the Athens Convention. This is a convention concerning the carriage of passengers and their luggage by sea. The United Kingdom has signed the convention but has not yet implemented it. Clause 28 amends the Consumer Protection Act of 1961 so as to make it clear that an exclusion clause cannot be used to evade the safety requirements of that Act. Clause 29 states that the Bill will come into force three months after it has been passed.

In conclusion, may I say that my background gives me a dual interest in this Bill. First, having been associated all my life with a consumer organisation I am well aware of the need for the protection of the consumer in the area covered by the Bill, but having spent the greater part of my working life in management I know the frustrations of uncertainty. I believe that this Bill seeks fairness while at the same time minimising uncertainty. I have pleasure in commending it to the House and I beg to move that the Bill he now read a second time.

Moved, That the Bill be now read 2^a— (Lord Jacques.)

4.12 p.m.

Lord LYELL

My Lords, all of us on these Benches and I believe all round the House would seek to congratulate the noble Lord, Lord Jacques, for introducing this fairly long but certainly immensely technical Bill to your Lordships this afternoon. We are all very glad to see that the main recommendations of the Law Commissions, both in England and Wales and in Scotland, are to be implemented in this Bill so far as the exclusion of liability in contracts or negligence is concerned. It is indeed pleasant to find that the individual is to be given further protection, especially where our society and our economy depends for the most part upon the demand for goods and services. It is even more pleasant to find that the Sale of Goods Act has stood the test of 84 years' use and refinement and revision. This Bill goes a little further in the process of up-dating commercial law, but I believe the Bill is still closely concerned and connected to the Act of 1893. However, as we have heard from the noble Lord, Lord Jacques, the main purpose is to prevent exclusion or the restriction of liability from hearing too harshly on the consumer or indeed on commercial businesses.

We take note of the clauses dealing with liability for death and personal injury which arise from negligence or breach of duty, and indeed we support those provisions most warmly. The two clauses which deal with the test for reasonableness where a consumer finds a business has disclaimed its responsibility so far as performance of the contract or agreement is concerned, are equally to he most warmly welcomed.

However, I wonder whether the noble Lord, Lord Jacques, and the Government would notice that all those professions and traders and industries which deal mainly with the public rather than with other businesses are happy to see that, where individuals are dissatisfied with the performance of some aspect of the agreement or contract, the Bill will put into law what is already laid down in various voluntary codes of protection and codes of conduct and practice. I am thinking especially of travel or tour operators. Certainly customers of that particular trade or industry receive excellent treatment, often going far beyond what is set out in this Bill. This is admirable, but noble Lords will notice in the Bill that there is no improvement in service to individuals which is utterly painless or indeed without cost.

Each year when I, and certainly other noble Lords, set off to represent your Lordships' House in foreign parts for all sorts of reasons we find at the foot of our travel invoice a little item "Two per cent. Government levy". This goes to ensure that travellers who take out navel tickets, or indeed book inclusive tours, from a recognised source and who are then possibly stranded or left in some difficulty suffer no financial penalty. The provision for protecting them against this is indeed an added expense which the travel operators cannot possibly absorb, given the degree of risk and competition in their business, so the cost of safeguarding the, happily very few, aggrieved consumers is borne by the great majority of travellers who have not, and will not have, any complaint.

There is another point I should like to raise and possibly the noble and learned Lord who is to reply for the Government will be able to enlighten me and, I hope, the House. It seems that when anyone buys a travel ticket he (or she) admits tacitly that he is aware of what are called the "company's terms of service", which I understand include terms of liability in cases of death or injury or mere inconvenience. Cases where travellers were inconvenienced or suffered damage were known, certainly in Scotland when I was studying—and I should be interested to receive confirmation from the noble and learned Lord, Lord McCluskey—as "ticket cases". I can certainly remember a number of esoteric cases which were not unconnected with contracts for the sale of goods. Most of those of course were decided in the early 20th century. But I wonder whether the new Bill will not cause massive inconvenience in that travellers will have to be asked whether they are aware of their rights when they purchase tickets, be they rail tickets, road tickets or sea tickets.

Indeed, we have had one interesting example this afternoon quoted by the noble Lord, Lord Jacques, in regard to cross-Channel car tickets. Apparently, unwittingly, all of us who take a car across the Channel are indemnifying the company against claims by third parties. Certainly I have not read what is described as the light grey print on the darker grey paper—or is it the other way round?—in these convoluted legal terms. When I buy my rail ticket I notice the small print on the back of the ticket which says that I may inspect the conditions of travel at the company's offices. Yet I understood that these reminders on tickets were to obviate inconvenience. I have information that the commercial world is to a major extent unware of the provisions contained in this Bill. This is no criticism of the Government or indeed of any Department. Indeed, I believe that your Lordships' House exists to check and to revise legislation which has such far-reaching consequences as this Bill.

These consequences could, and I believe will, include a massive increase in litigation, not necessarily between businesses and consumers, but more often—dare one say, almost exclusively?—between one section of a business and another. For the purposes of the Bill the noble Lord, Lord Jacques, and I are mere consumers amid the more businesslike approach of the many noble and learned Lords who sit all around us in the House and who will speak later this afternoon. Thus, I tread warily when I mention that there are fears that the provisions of the Bill as between business and business could open up new facets of law with new cases and judgments. This will increase costs and in some cases it could mean a sensational rise in prospective damages. One can see this every day in the United States of America.

There is, of course, one major safeguard at present contained in the Bill and it is the concept of, and indeed the clauses containing the word, "reasonableness". The noble Lord, Lord Jacques, explained it to us very fully, but to me it is a new concept and it is to be written into the Bill as well as into other Acts. One example is the Misrepresentation Act. Certainly the clauses dealing with reasonableness are well drafted and appear to put into Statute form many judgments in cases from both England and Scotland. I hope and believe that the clauses dealing with reasonableness will make the Bill's provisions not unduly onerous, but I must warn noble Lords that voices are being raised in concern that these clauses may bring about all that we do not want in commercial law; for instance, disputes, disagreements, litigation and added costs.

My Lords, there is one aspect of the title which interests me; it is the change from "avoidance of liability" to "unfair contracts". Apart from the purely emotive aspect, I think there is some mild inaccuracy. The old title is perfectly clear to me, and, I believe, to others in your Lordships' House. Many of us are not lawyers; certainly, for my part, I rush for the nearest legal practitioner when the law threatens me or any action of mine. Would not the noble Lord, Lord Jacques, agree that this new title may give the impression that contracts which are freely struck and concluded are oppressive on one side or another? I do not think that he or the Government, or the Bill, intends this; yet the lingering impression is that some, and indeed many, contracts are oppressive.

There is another question concerning the burden of proof. The Bill contains references which represent a very major shift in the balance of the law, not necessarily in connection with consumers. If we look at Clause 10(4), and Clause 22(3) for the Scottish equivalent, we find that the defendant—I think in Scotland he is called the defender; if the noble and learned Lord, Lord McCluskey, would confirm that point I would be grateful—has to counter-attack and prove the burden of his case. This may well be what the Law Commissions had in mind, but I would be grateful to receive confirmation; I think it is indeed possible. But, as it is seen throughout the Bill, the consumer is well protected but the commercial world has cause for concern, in that what have until now been acceptable terms in a contract and have at no time been troublesome, nor oppressive nor contentious are now to be so. I think that Clauses 10(4) and 22(3) could give rise to a flood of litigation, not all of it entirely valid, and I believe some of it merely malicious.

My Lords, the Bill is technical. I find it very interesting. It is relevant, and for the major part it is desirable. It seems to push heavily towards the consumer, and yet it does no more than enact what is contained in codes of practice which have effect when a trade or an industry is dealing with individual members of the public. There are some legitimate reservations in the minds of some businesses and industries so far as they engage in business with others similarly engaged.

I hope we can discuss these points before, or possibly at, Committee stage. In connection with any possible discussions and our further deliberations, I am glad that our printers, at least, seem to be back in full flow, because there have been complaints that the Bill, with all its consequences, has not received the publicity and attention which it merits. This could be due to the printing difficulties in another place. I would conclude by congratulating the noble Lord, Lord Jacques, on bringing forward this Bill, and indeed on his mastery of the many technical details. We look forward to hearing from him in reply, and indeed to hearing the many noble and learned Lords who are going to speak on the Bill this afternoon.

4.25 p.m.

Lord MORRIS of BORTH-Y-GEST

My Lords, I should like to express a general welcome for this Bill, and in doing so I would voice my warm appreciation of the way in which the noble Lord, Lord Jacques, introduced it to us. I do not think this was a Bill that was very easy to expound, but I thought, if I may respectfully say so, Lord Jacques helped us by the clarity of his introduction and exposition. I would join with the noble Lord, Lord Jacques, in taking this opportunity to express once again admiration of the work undertaken by the Law Commissions, in this case by the two Law Commissions. I would endorse all that the noble Lord said as to the care that has been devoted to the problems that arise in considering this Bill.

My Lords, as long ago as 1969 there was the First Report. That report made recommendations in regard to the law of the sale of goods. One very important consequence of that report was that there was passed the Supply of Goods (Implied Terms) Act 1973, which I regard as a very important Act. Then the second stage of the inquiry related to exemption clauses in a much wider field. The method of work was very thorough. There was a Joint Working Party—the names are all recorded in the report of the Law Commission—and that Working Party had members with particular qualifications of knowledge and experience. They considered the evidence submitted by various bodies and individuals who had special interests. Then the Law Commissions considered their conclusions and published a document for consultation; after full opportunity for consultation, there came the final reports, which we have, that the Law Commission and the Scottish Law Commission published in August 1975.

I think we can feel, and with gratitude acknowledge, that very careful and elaborate consideration has been given to the various recommendations in the reports. It is true that the two Law Commissions differed on some matters. That circumstance in itself perhaps illustrates the care with which the problems were examined. One report was that of the Law Commission for England and Wales; the other was the report of the Law Commission for Scotland. The noble Lord, Lord Jacques, has told us of the way in which various differences were resolved. The Scottish views were given preference in a number of cases over the views of the Law Commission for England and Wales. Despite that fact, I found myself very much in agreement with the preference given to the views of the Scottish Law Commission where they have been preferred in the Bill now before your Lordships.

My Lords, I regard this Bill as being a very important one. It deals with a variety of human and day-to-day activities, and I for one am wholly in sympathy with the general philosophy which is the basis of the Bill. As the noble Lord has told us, it deals with various potential liabilities for breach of contract, for negligence, and for other breaches of duty. I think we all start with a general predisposition in favour of freedom of contract. Yet I think we must pose to ourselves the question: To what extent ought such liabilities to be avoided by contract terms or otherwise? If I put that question to myself, I would make answer: "Well, at all events, not by any unfair terms or by any unreasonable terms". That really is the answer which this Bill gives in so many places. It makes assault upon unfairness and it expects and requires reasonableness. Any legislation calculated to achieve fairness and reasonableness must, I think, win the heart of any lawyer, for surely fairness and reasonableness are the twin pillars upon which the working of any legal system should be based.

Yet the questions may be asked: Is there a case for legislation? Are we unduly interfering with freedom of contract? Are we indulging in too zealous a paternalistic approach? I think not. The relevant considerations supporting the necessity for the main provisions in the Bill are well set out in the report of the Law Commission. In particular I refer to paragraph 11, which begins: It is clear that exemption clauses are much used both in dealings with private individuals and in purely commercial transactions. We are in no doubt that in many cases they operate against the public interest and that the prevailing judicial attitude of suspicion, or indeed of hostility, to such clauses is well founded". I think that we all share that "prevailing judicial attitude of suspicion". I think that we are all alarmed—or if we are not alarmed we may be disarmed—by some of the small-print clauses. I remember that Lord Evershed, in one case where a contract was under consideration, made the remark: I think that this contract is so one-sided that I am surprised to find that it extends over both sides of the paper". It is right that the courts should give protection in many cases. I commend the rest of paragraph 11 to your Lordships as based upon sound experience and good reasoning. The report points out: All too often, they [the clauses] are introduced in ways which result in the party affected by them remaining ignorant of their presence or import until it is too late. That party, even if he knows of the exemption clause, will often be unable to appreciate that he may lose by accepting it. In any case, he may not have sufficient bargaining strength to refuse to accept it". The Law Commission then point out that the result may be a failure to achieve satisfactory standards. They continue: There is no doubt that the misuse of these clauses is objectionable. Some are unjustified". However, the Law Commission put the other side of the considerations and they conclude: Others, however, may operate fairly or unfairly, efficiently or inefficiently, depending on the circumstances; for example, the cost and practicability of insurance may be factors in determining how liability should be apportioned between two contracting parties. The problem of devising satisfactory methods of controlling the use of these clauses, and indeed of identifying some of them, has proved both difficult and complicated". I agree entirely with the point taken by the noble Lord, Lord Lyell, in his very interesting speech, that as a result of the Bill, if your Lordships accept it, there may be additional litigation. There may be. But I do not fear the test of reasonableness. Save in the cases where the Bill makes an exemption clause entirely void, I think that where it is left to the test of reasonableness we can safely leave the matter in the hands of the judges, who can balance the considerations one way and the other. It is not only the consumer who has to be considered; the rights and interests of the other party must manifestly be kept fully in mind. On that point I am not sure that I quite agree with the noble Lord, Lord Lyell, about the burden of proof. I do not think that I am alarmed by the provision in the Bill casting the onus of proof.

In our days of legal reading we recall that Maine had expressed the view that the development was from status to contract. I cannot help thinking that in recent times there has been a change of direction and that in so many spheres it is now status and not contract that prevails. Perhaps I may give two illustrations. I see that the noble Lord, Lord Hailsham of Saint Marylebone, agrees with me; I hope that he will also agree with me that, on the whole, it is not a bad thing to pay full regard to status, sometimes to the exclusion of contract. As one illustration I give the status of the tenant. From 1915 onwards, in days of housing shortage and difficulties in time of war, everyone realised that one cannot allow contract to rule without any limitation. One cannot eject a tenant in times of great difficulty when he would have nowhere to go. One cannot let the landlord charge any amount because of the shortage. One must control. The status of being a tenant must be considered. I could give many more examples. Per- haps I could just add one other—the status of being an employee. As I understand it, we have now recognised that, although contractual terms are followed, a case may be brought, and it may succeed, that dismissal, according to the terms of a contract, has been unfair. We have not hesitated in recent years to restrict exemptions from liability.

We all recall some time ago, in days of transport difficulties, perhaps a railway strike, that people gave lifts and put a notice on their cars saying: Lift given—entirely at passenger's risk". Not only have we made compulsory insurance to cover passengers, but we have enacted that any arrangement restricting liability in the case of the death or injury of a passenger will be void. I do not think that we were wrong so to restrict absolute freedom of contract. There is a provision in the Companies Act 1948 making void any exclusion of liability for negligence on the part of an auditor. There is a provision in the Solicitors Act 1974 avoiding any agreement absolving a solicitor from liability for negligence in contentious business. Then there are all the changes made so recently in the Sale of Goods Act. The original provision in the Sale of Goods Act—I think that it was Section 55—provided that any right, duty or liability arising by implication of law might be negatived or varied by express agreement. All that was changed in 1973 in the Act to which the noble Lord, Lord Jacques, referred and to which I have referred.

The noble Lord also referred to the Misrepresentation Act 1967. There Parliament enshrined the test of reasonableness. Your Lordships will recall that by that Act in 1967 damages could be awarded for innocent misrepresentation where a contract had been made after misrepresentation, unless the person concerned proved that he had reasonable ground to believe, and did believe, that the facts represented were true. But could that provision be excluded by contract? "No", said Section 3 of that Act. Such a, … provision shall be of no effect except to the extent (if any) that, in any proceedings arising out of the contract, the court or arbitrator may allow reliance on it as being fair and reasonable in the circumstances of the case". That is very much in accord with the new Clause 10 of this Bill. There was a difference between the two Law Commissions as to the time to be taken. I think the view taken by Clause 10 is that the time of the making of the contract is the important time: … the term 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". I think that we can fairly leave to the judges a decision in regard to such matters, having regard to all the circumstances whether something, … ought reasonably to have been, known to or in the contemplation of the parties when the contract was made". As I understand it, this Bill will cover a wide range of ordinary transactions. The noble Lord, Lord Jacques, has pointed to the fact, as set out in Schedule 1, that a great many matters are excluded. The noble Lord enumerated them. I think that is right, for the time being at any rate. Sections 2 to 4…do not extend to—

1. (a) any contract of insurance…
2. (b) any contract so far as it creates or transfers a right or interest in land",

and so on. (c) any contract so far as it relates to the formation or dissolution of a company", and so on. (d) any contract so far as it creates or transfers any right or interest in the shares, stock or other securities of a company". But there are many transactions affecting the ordinary citizen which will come within the purview of this Bill. First, there are hiring transactions. Sale and hire purchase were covered by the previous legislation. What about hiring? There is hiring by somebody in business to somebody in business, and then there is hiring by somebody in business to somebody who, in the language of the Bill, "deals as a consumer". I think it is right to have a difference as between those two.

Let us take an ordinary transaction; the hire of a television set. I think that that would be covered by the words of being hired by somebody in business to somebody who deals as a consumer. It seems an odd idea that you regard the "box" as something to be consumed, but I think the situation is covered there. Take the case of sending goods to a laundry. Suppose the laundry have a clause to the effect that they are not to be liable for any loss or damage of the goods. Take the case of a garage. You leave your car at a garage where there is a notice saying, "Cars are left entirely at the owner's risk". Then, suppose the car is damaged by the negligence of the garage proprietor. Of course, in those cases there is always the preliminary point as to the construction of the clause, and I think the courts have been averse from holding that an exclusion clause covers negligence unless the words are very clear.

Take the ordinary case of something left in the cloakroom, or in the left luggage place, where there is some notice, "Left entirely at the owner's risk". Take the case of a museum, or gallery, or stately home where people pay to enter and there is a notice, "No liability for any defect in the premises". Take the case of an architect. He draws plans and when they are used they are found to be faulty and expense is involved. Suppose he had put up a notice, "No liability for negligence". Take the case of an accountant or a valuer. An accountant gives advice which involves a company in a considerable loss. A valuer gives a wrong valuation, and considerable loss is effected. I would ask the general question: am I right in thinking that, in all these cases, the transaction will, in the future, have to be examined in the light of the provisions of this Bill?

A second question I would ask—although I do not expect an answer to these questions now; it may be that they will have to be resolved in due course by the courts—is whether I am right in thinking that there is any overlap between some of these clauses. Take, for example, the case I put forward of the hire of a television set. I think hiring comes within Clause 7, and I suppose if you hire a television set there will be an implied contract that it will be in reasonable condition to enable you to view the programme. Clause 7(2) says: As against a person dealing as consumer, liability in respect of the goods' correspondence with description or sample, or their quality or fitness for any particular purpose, cannot be excluded or restricted by reference to any such term". I should have thought that that was right and reasonable, but I was not quite sure, in reading the Bill, whether Clauses 2 or 3 would also apply to such a transaction, because there might be a different test (namely, that of reasonableness) in the case I posed. I would think that it came within Clause 7 and that you could not exclude an implied term that the set should be in condition that you may use it for receiving programmes.

Finally, may I ask under the Bill what is the position of a banker's reference. Again, I do not ask for an answer to this question now. It may well be that the matter will have to be resolved in the courts. Suppose a banker gives a reference and he puts on the reference, "Without recourse", or "Without any responsibility". I suppose a banker's reference is generally given by a bank to a bank, but it is given with knowledge that it is likely to be passed on to someone who will rely upon it.

There is also the question of what does a banker undertake to do when he gives a reference. Does he undertake to make inquiries, or undertake only to be honest? These are questions that we cannot in any way resolve this afternoon in a debate of this kind. They may be matters for decision in the courts. But suppose the bank inserts a clause saying, "No liability for any negligence in giving this reference"? I think that that would be covered by Clause 2 and that the court, if an occasion arose, would have to decide whether that exclusion was entirely reasonable. I repeat that those are matters about which I would not expect any answers this afternoon; they may or may not arise in litigation. I end as I began; that is, by giving a welcome to the Bill and by expressing my gratitude to Lord Jacques. This is a worthwhile Bill and I am in full support of the philosophy that underlies it.

4.51 p.m.

Baroness PHILLIPS

My Lords, I too wish to congratulate my noble friend Lord Jacques on the very clear exposition he gave of a highly legal Bill. I was able to understand every word of his explanation and I congratulate him. I also wish to give the Bill a warm welcome and, following the very thoughtful speeches we have had, I would only say that for many years I have conducted a consumer programme in which we have endeavoured to help those unfortunate people who were not truly getting value for money.

It is very noticeable that over the years more and more people spend money not merely on the goods they buy through retail outlets but for services which perhaps 50 years ago would not have been contemplated as purchases by the ordinary consumer. The law of contract between buyer and seller has always seemed to me rather like a marriage; everything is splendid if all goes well but if things go badly people begin to read the small print, and it is generally against one party rather than against another.

Lord Jacques and the noble and learned Lord, Lord Morris of Borth-y-Gest, spoke of some of the areas in which exclusion clauses occur and I wish to remind noble Lords of some others. Lord Jacques said that the order-making powers were slow and he hoped it would not be so necessary to use them; in other words, that there might be other ways of dealing with the issue. I would say to the noble Lord, Lord Lyell, that in my experience the codes of practice have not been found to be entirely useful, as they are invariably voluntary and refer only to those people who are willing to undertake them. Consider the case of the dry cleaner. All too frequently have I heard of customers whose dresses have disintegrated because of being put in certain liquids. When those customers have tried to obtain redress, their attention has been drawn to an exclusion clause on the back of the tickets which they have not read, which is very poor comfort if, by that time, they do not have the article for which they paid money.

I must confess that the only time I have read the exclusion clauses in relation to travel, it has seemed to me that British Rail are under no obligation even to get me from point A to point B—I hope I am wrong about that—although when I was travelling to Brighton last week and we were all tipped out in the pouring rain two stations before, I wondered what clause in any contract I could invoke, apart from heavily complaining about the people who had caused it.

We now have some very sophisticated terms of service. For example, we have those applying to central heating installations, but I will not worry your Lordships with the horrible stories of people who have spent in many cases a couple of thousand pounds but have been left with apparatus which neither works nor gives them any heat. We all know about the car parking situation; the fact that National Car Parks write into their exclusion clauses an obligation which provides that they shall do nothing except allow one to put one's car there. It seems to me that if it is damaged by anybody else, that is bad luck and they appear to be indemnified by their exclusion clauses against any sort of obligation.

I remember the excitement when we got the Supply of Goods (Implied Terms) Act 1973, and I still invoke this excellent little Act. I will quote from the leaflet which was issued at that time by the Office of Fair Trading. At the very beginning—I have a copy of the leaflet with me—it said: For many years the law has given the buyer of goods certain implied rights. The rights are ' implied' in that they do not have to be specifically claimed by the buyer, either orally or in writing, whenever goods are bought. Unfortunately for the modern consumer the Act concerned, the Sale of Goods Act 1893, allowed the parties to such a sale to agree in the contract that these rights should not operate. I think we all remember how customers had to sign away their rights in order to buy certain goods. What a delight it was when we got the Supply of Goods (Implied Terms) Act, which put the matter right. However, at the end of that excellent leaflet it said: Are services covered by goods? No. At present the law applies only to goods. Exclusion of liability in the supply of services is being studied now and possible extension of the law to cover services will be considered when the studies have been completed. Today, in 1977, apparently the studies have been completed and this afternoon your Lordships are asked to approve a law which will put this matter right. I give it a warm welcome and wish it a speedy passage through the House.

4.57 p.m.

Viscount HANWORTH

My Lords, coming relatively late in the list of speakers and as everybody else has welcomed the Bill, I do not think it is necessary for me to do much more than say how much I welcome it from the consumers' angle. It is not a bonanza for consumers but a piece of reasoned legislation which brings the exemption and restriction clauses for service contracts roughly into line with those for the sale of goods. We might remember that in many cases it simply is not reasonable to expect even a highly intelligent person to read the small print of a contract. I am thinking of such instances as going to a garage in an emergency or parking one's car. In some such cases a person really has no choice, even if he is able to read the small print. The Bill is therefore an important step forward and I am glad that it has virtually no opposition.

4.58 p.m.

Lord DENNING

My Lords, I am sorry that I was not in my place when the noble Lord, Lord Jacques, moved the Second Reading. It seems to me to introduce one of the most important reforms in our time in our civil law, both of contract and of tort. Let me describe the position as it has been up to the presentation of this measure, and I wish particularly to draw attention to the printed conditions which appear on the backs of order forms, warehousemen's notes, laundry cleaning documents and the like; whatever it may be, we sign them without reading them and, if we do not read them or there is no place for signing, we are bound by them.

They are said to be contracts, but we have never agreed to them. It is a fiction of the law to say they are contracts, and it has been a great mistake of the law hitherto to say that the courts cannot inquire as to whether or not they are reasonable. I was engaged in a case many years ago which exemplified the old law as it existed. It was a case in which a salesman went to a little shop in North Wales and induced the shopkeeper, a lady, to buy an automatic machine from him, the price to be paid by instalments. He produced a long brown printed form and asked her to "sign here", which she did without reading it. The automatic machine was delivered. It did not work. Mechanics were sent down three times. Still it did not work, and finally she said, "I cannot pay the instalments". So the company took her to the county court. There she said that the machine did not work. The company said, "Look at the clause." There it was in small print on the back of the form, Any condition or warranty, express or implied by Statute or by common law is hereby excluded The county court judge managed to get round this and found for the lady and I was instructed for the company in the Court of Appeal.

At the Bar, I was concerned to win the case. I was not concerned with what was right or wrong. I said to Lord Justice Scrutton, producing some old cases, "Look at this, she signed it. It doesn't matter that she didn't read it; it doesn't matter if she couldn't read it because the print was too small; it doesn't matter if it was most unreasonable. She is still bound." Lord Justice Scrutton said, "Yes, in the absence of fraud or misrepresentation she is bound to pay these instalments." There she was, bound to pay the instalments for the machine that would not work.

To tell you the sequel, my Lords, that reporter in the courts did not report the case at once. He did not think so much of it, but my company had it privately printed and I went round the county courts of England winning case after case, most unrighteously. That was the law as laid down in 1934 and it has remained so ever since. However, I shall tell your Lordships how we got round it. I had a personal experience a little while after that. I went over to Northern Ireland and took the car. Of course, in coastal traffic, one can put in any conditions one likes so, when I went to the boat, I was told, "Go and get the sailing ticket. Sign here". I signed there and I pushed the form into my pocket. I looked at it as we went across the Irish Channel, and it said that the company would not be liable for any act or default, wilful misconduct or otherwise howsoever. They could have thrown the car into the sea for aught I could have done!

I went to the Court of Appeal, and there we tried to find a way round this. A case arose in which a hire-purchase company had hired a motor car to a man and told him to sign as usual and pay the usual fee. They said that they would deliver the car the next morning and, when he got up in the morning, there it was at his front gate. However, the company had had to tow it there because it would not go. When they sued him for payment, he said, "It won't go." "Look at the clause," said the company. They did not guarantee the car's roadworthy condition or anything at all. In the Court of Appeal, we managed to say that if a company was guilty of a fundamental breach that went to the very root of a contract it could not rely on these exception clauses. Your Lordships may think that we did very well and that we did a great deal to stop the exception clauses but, oh no. About 17 years later, the House of Lords in its judicial capacity found that we were wrong and that the clauses must be construed according to their proper intent and given effect to if they were clear enough. So it looked as though we had lost.

However, we in the Court of Appeal have ways of getting round things and, if your Lordships look at recent cases, and in particular one this year about a lady who sent her carpet to be cleaned and the cleaners lost it, you will see what I mean. The cleaners, having lost the carpet, said, "Look at the clause. It says, entirely at owner's risk, liability not more than £2'." We held that the company was guilty of a fundamental breach and that it could not rely on the clause.

So your Lordships may think that we have done something but, really, it was unsatisfactory. The House of Lords was right. We had tackled the problem as best we could, but it is right, on the law as laid down by the House of Lords, that these clauses, if they are expressed clearly enough, can exempt a person from any liability for anything whatsoever. We have tried before to bring in reasonableness but never before succeeded. How good it is that the Law Commission has looked into the matter most thoroughly and that there will be no need for our old doctrine about the fundamental breach because, in future, the courts will be able to inquire into the reasonableness of these clauses and the equality or inequality of bargaining power both in these standard form clauses and in consumer clauses and the like and, if they are not reasonable, the courts will be able to say that they will not allow the exemption to apply. That will do away with our subterfuges and will bring the law to say quite clearly that companies cannot rely on these clauses if they are not reasonable. That is a whole modern innovation in our law of contract.

I should like to add one word, however. This applies not only to our law of contract but also to the notices which people put up, for instance, in car parks saying that the car is parked at the owner's risk. The banker giving a reference who says that it is without responsibility, the solicitor the engineer or the accountant who seek by a notice to escape liability for their own negligence, will not be allowed to do so. Such a notice will not be valid unless it is found to be reasonable.

However good this is, the vista that lies before us is that all the companies, and other great organisations which hitherto had conditions on the back of their forms, will, almost at the moment the Bill passes, go to their lawyers and say, "Please revise these so as to see that they are reasonable." I can foresee case after case coming before the courts, whether or not on friendly arrangement, in which we are asked to say whether a clause is reasonable. So there is a lot of work ahead for the lawyers. Still, as a matter of principle, this Bill is right. People ought not to be able to exempt themselves from liability for their own negligence unless it is reasonable, and reasonable as between the parties concerned. That is why I wholeheartedly support the Bill.

I should like to throw out, as did my noble and learned friend, a few words about the fact that the ultimate object behind this move is to transfer the responsibility for insurance. In the old days, the companies would seek not to insure, or not to insure so much, by inserting exemption clauses placing the risk on the individual. Let the man who sends his laundry or his carpets to the cleaners take out the insurance. Let the man who sends his furniture to the warehouse take out insurance. The companies would insert their exemption clauses. The result of this legislation will be that the burden of insurance should, as I think is right, be turned over to the companies who carry out all these activities. If they injure the consumer, the consumer can sue the companies which, if they are wise, will have covered themselves by insurance against liability. So it will affect greatly the commercial practice of our companies in relation to insurance.

When I speak of insurance it leads me to think of the professions. I have in mind, for instance, the engineer who is said to be negligent (let us say when that great bridge fell down in Australia); or the accountants who in giving advice may be negligent, and one or two million pounds may be claimed against them for their negligence. The solicitor might have his insurance, and so might the barrister, too. But the insurance companies are ready to insure only up to a certain amount. Depending upon your profession you cannot get cover beyond £100,000, or if you are a lawyer perhaps £1 million. I do not know whether there is any limit for the engineer or the accountant. I wonder whether it would not be reasonable for people to be able to limit their liability to the amount of the insurance cover which is open to them. Otherwise it might be found that professional men—doctors or others—are ruined by enormous claims which they could not meet and against which they could not insure.

That is just a thought, my Lords. I hope that reasonable clauses can be put in to protect such people. That is one of the consequences which can be envisaged as a result of the Bill. There are consequences. It will run throughout the professions and throughout the commercial community, but on the whole it is a very great reform. Difficulties must be faced, but it is a very great reform, and, if I may say so, the Law Commission and my noble friend hake done a great service to the country in bringing the Bill forward and I hope that it will be welcomed and passed by your Lordships' House.

Lord AIREDALE

My Lords, one small point came to my notice only this morning which I think worth mentioning. I believe that shortly we are to have regulations under the Consumer Credit Act which will lay down what must be contained in the documents issued by the finance companies, and no doubt this Bill, too, if it is passed, will affect what may be contained in such documents. So let us have some co-ordination so that the finance companies will be able to re-design their documents once, and not twice, within a short space of time.

5.13 p.m.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, after the chorus of praise I think there is relatively little for me to say. I deliberately asked my noble friend Lord Lye11 to speak on behalf of the Party first. He had won such a glorious pair of spurs over the law of patents that I was only waiting for the noble and learned Lord on the Woolsack to give him an honorary QC. Of course he would have to he called to the Bar first, but no doubt that could easily be arranged at Gray's Inn. I deliberately wanted to wait to see what the noble and learned Lords on the Cross-Benches said, and I am sure that the House is very grateful to them both for their very different appreciations of the effect of the Bill. I should also like to congratulate the noble Lord, Lord Jacques, for the extraordinarily lucid exposition of the Bill with which he began. It cannot have been easy for him in a technical matter to know exactly what to say—or what to leave out—or exactly how to say it, and I think the House is generally agreed that he put his case with perfection.

First of all, it is quite clearly my political judgment that the Bill must go through, and substantially without amendment. As I have pointed out in this House previously—and this was first said by Lord Campbell, a Lord Chancellor in the 19th century—one either does law reform by consent or one does not do it at all. In practice one cannot carry law reform measures through Parliament by controversial legislation which takes up an inordinate amount of Government time. Thanks to the noble and learned Lord, Lord Gardiner, we now have two instruments for doing it, and those two instruments have developed a technique of doing it which, though no doubt it can be improved, indicates the way in which it must happen. We have the two on-going bodies—the two Law Commissions—and the technique of working paper and consultation.

In this case I wish that all law reform measures went through that particular fence, or something similar to it, because at the end of the day one can get a workmanlike reform which, at any rate, has a body of opinion behind it. This Bill has gone through all those hoops and is now before Parliament. Moreover, not only is it supported by the Government (as I hope we shall shortly be hearing from the noble and learned Lord on the Woolsack) but my own Party almost went overboard in its excitement for it in the House of Commons. Reading, as I did late one night of the enthralling picture of the Committee stage in that place, it seemed to me that my Party was defeating the Government every few minutes in a desire to make the Bill more exacting in its provisions, and it is rather in that form in which it has come up here. I am bound to say that I, like Voltaire, even when my own Party is guilty of it, am a little sales resistant to an excess of zeal, and after all this praise I am going to put in one or two caveats.

First, I think that the change of Title is a change for the worse. The Bill started by being called, in effect, the Avoidance of Liability Bill, and it is now being called the Unfair Contract Terms Bill. That is wholly misleading because there are plenty of unfair terms in contracts which do not consist of exemption clauses. All of us who read the Law Reports—as some of us have to do—are familiar with those awful clauses in estate agents' contracts which attract sums of money when no relevant service has in fact been performed. We all know that there are terms in leases which are sometimes abominably unfair, and if one cared to do so one could continue the catalogue almost indefinitely. I hope that the Government, or perhaps the noble Lord, Lord Jacques, will at least seriously consider the rather ridiculous rhetoric brought at a late stage into the Short Title of the Bill, because it is itself a form of misleading device which ought to be prosecuted under the Trades Descriptions Act. Unfortunately, those responsible for it, being in another place, are protected from any kind of liability for their misleading trade description.

The second point that I want to emphasise is that I endorse what the noble and learned Lord, Lord Denning, said a few minutes ago. I think that it will be very difficult to give adequate insurance to professional men who may make themselves liable for damage quite beyond their means and beyond the point at which they can find insurance to protect themselves. The noble and learned Lord, Lord Denning, referred to the engineer who builds a bridge. In such a case, if a train carrying 100 or 200 passengers falls off the bridge after it collapses with a vast amount of traffic on it, the engineer could find himself liable for hundreds of millions of pounds, especially if the plaintiffs lived in America and, if in America, particularly in California.

I was, at the end of my career at the Bar, familiar with a case called Hedley Byrne v Heller, which caused quite a flutter in the legal dovecotes because it suggested that barristers might be responsible for negligent advice. I hope they are not; but, at any rate, this was the suggestion. I therefore thought it prudent to run round to Lloyd's and insure my chambers, and they made it clear (at least, so far as I remember) that they were not prepared to pay more than £250,000 for any incident. Now when, as a barrister, you are advising, in a responsible kind of way, these big international companies, you cannot hide behind limited liability because you cannot turn yourself into a limited company with £100 capital: and, of course, if you give the wrong advice you can render yourself liable for literally millions of pounds which you have not the hope of an icicle in June of paying, and when you go round to the insurers you find you cannot insure against it, either.

I think one must give serious consideration to the position of professional and other people in this line, as to whether it is reasonable to ask them to incur a liability for providing their ordinary professional service when, as a matter of fact, no single human being can hope to recompense those who may be damaged as a result of a fault. I think also that one ought to consider at the same time the range of clauses which deal with remoteness of damage. It is the classes of damage, not merely the quantitative amount of damage. I think we must think in terms of whether it is not reasonable for the providers of goods and services to guard themselves against the remoteness of certain types of damage.

In this respect, I could not help noticing that the other day my son was practising in front of, I think, the Master of the Rolls, in a case about pigs, which was perhaps rather suitable in some ways. At any rate there must be, I should have thought, some careful consideration given to the question of the class of damages to which a professional firm can be made liable.

Having said that, I do have some reservations about "reasonableness", in spite of the very warm commendations which it has had. "Leave it to the judges", say the judges; but, of course, to cobblers there is nothing like leather. "The judges can be trusted", say the judges. Not so Mr. Michael Foot, who, with great respect to the noble and learned Lord on the Woolsack, takes exactly the opposite point of view. I take an intermediate point of view. Judges are absolutely reliable subject to the ordinary defects of human nature, from which even they suffer to a very small degree. Most of them are endowed with half the usual ration of original sin; but, at any rate, they are absolutely reliable when they are dealing with something which is strictly speaking justiciable. That is to say, they are reliable when the question is one of disputed fact, because one of their specialities is deciding who is telling lies and who can be believed, and sorting out a complicated skein of facts so that they get as near as human beings can to the truth; and, equally, in applying known principles of law. But reasonableness is not a known principle of law, and I am bound to tell the House that that is my conclusion about it.

Reasonableness, even with guidelines, whatever they may be, contained in the Schedule, is as long as the judge's foot—and in this case the Master of the Rolls' foot. Although, of course, in the past juries were supposed to know what a reasonable man would do, there were at least twelve of them, so their idiosyncrasies were apt to cancel out. But when there is one, or at the most three, one cannot be quite so sure. I know it is said that at common law there is a class of contract case—namely, the restrictions on employers' contracts with their employees as to future activities—where reasonableness was a test and where the burden of proof was, again, on the employer; and there are the more recent cases of the Misrepresentation Act 1967 and the 1973 Act dealing with the supply of goods, to which reference has been made. I do not believe that those Acts have really worked through the profession yet, and I do not regard the fact that Parliament has enacted new legislation recently as an absolute guide to the reasonableness of the legislation which Parliament has enacted for the purpose of extending it still further.

I am bound to say that I think that up to a point this Bill is a leap in the dark. It is, as the noble and learned Lord, the Master of the Rolls, said, a revolution in the law of contract. I am bound to say he greatly underestimated his own capacity for making new law. Towards the end of my life at the Bar I began to say, "Give me an exclusion clause and show me the Master of the Rolls, and I will break it". I think he did underestimate his own power to act without Parliament, or in advance of Parliament; but, at the same time, I doubt whether reasonableness is fully justiciable, at any rate on the established principles of law. However, at the end of the time, like any other practising barrister—at least, any other barrister practising in the common law courts—I broadly agree that exclusion clauses had gone beyond the limits of what was tolerable.

The noble and learned Lord, the Master of the Rolls, referred to the small print, but sometimes it was the big print which was even more misleading. With a sale of goods—a new television set or a new motor-car—you got something with gold edges round it, and it was called "Guarantee". It had a seal, or a mock seal, upon it, and you thought you were getting the whole Bank of England; but in point of fact, if you read it at all, even the largest print, it said you were getting it instead of what the law would otherwise have given you, and what you were getting instead of what the law would otherwise have given you was simply an undertaking to replace defective parts, without any consequential damage being allowed for at all. So this Bill has got to go through. I am not quite so enthusiastic about it as some of my noble friends, but good luck to it; and good luck, too, to the noble and learned Lord, the Lord Chancellor, in replying to the debate, and to the noble Lord, Lord Jacques.

5.28 p.m.

The LORD CHANCELLOR (Lord Elwyn-Jones)

My Lords, upon that encouraging note it gives me very great satisfaction to say that the Government of course enthusiastically support this Bill. I should like to add therefore my chorus of acclamation to that which has already been given by so many splendid voices, speaking with such splendid and complete authority. Indeed, it is a happy thought that all the Parties in the other place, and now apparently here, are like-minded in welcoming the principle of the Bill, and I am glad to say that the Government have been pleased to be of assistance to the Bill's sponsors—and of course I can assure them of our continuing commitment.

I should like first of all to thank my noble friend Lord Jacques for undertaking the task of steering this Bill through the House and to congratulate him upon the masterly way in which he introduced the Bill today and for explaining it so clearly to us. As the noble and learned Lord, Lord Denning, has pointed out, it is obviously a Bill of very great importance, and I agree with the noble Lord, Lord Lyell, who again I compliment upon his courageous embarkation upon the technical field of the law so well, that it is very important that its provisions should become known and steps will obviously have to be taken to see that that is done.

As has been said, I believe that the Bill goes far to remove one of the worst blots in our law of contract and provides valuable protection for consumers. It would not have been possible were it not for the years of work that the two Law Commissions have put into the Bill. We are most grateful indeed for the splendid and continuing work of the Law Commissions and I would venture, encouraged by the observations of the noble and learned Lord, Lord Hailsham, to say a few words about the work of the Law Commissions, particularly in the light of certain week-end commentaries which I read upon this matter.

This Bill is one of no less than six now before Parliament which deal, in whole or in part, with implementation of reports prepared by the Law Commission. If one were to add reports prepared by the Scottish Law Commission who participated in the work on exemption clauses, the total would be higher. Reform of the law of exemption clauses is one, I believe, of the major reforms to have emerged from the Law Commissions; but there are other achievements which I think it is right that I should mention. This House has recently sent to another place a major Bill dealing with the criminal law, one of the main purposes of which was to implement the bulk of the Law Commission's Report on Conspiracy. Other current Bills—and these do not include a Private Member's Bill in another place which unfortunately did not make progress—concern rentcharges, a Bill which your Lordships may expect to see shortly; jurisdiction of ancient courts (which is contained in the Administration of Justice Bill already before your Lordships' House); the Statute Law Repeals Bill, the biggest Bill of its kind since the Law Commissions began work in 1965; and a report on the consolidation of the Rents Acts.

My Lords, I think the position could fairly be summarised thus: no single law reform agency and, indeed, no single Government Department is currently active in so many different fields of law reform as the Law Commission, and none has so many measures (some of them of considerable social importance) now before Parliament. There are, of course, a number of reports before me which do not appear in current Bills. I had been hoping to be able to implement one of these, on Remedies in Administrative Law, by Rules of Court, and this proposal was well advanced at the time when the Court of Appeal gave its judgment in the case of Gouriet v The Union of Post Office Workers. I have, however, decided that it would not be sensible to make further progress with this until the outcome of the appeal to your Lordships' House in that case is known. This is because an important issue in that case concerns locus standi which is very closely related to the proposals of the Law Commission.

My Lords, since we are dealing today with a matter of close concern to consumers, it may be of interest if I say that the Lord Advocate and I have recently received from the two Law Commissions an important report on Liability for Defective Products. This report will be published as soon as possible as a Command Paper. One of the subjects with which it deals is a draft directive prepared by the Commission of the EEC. The Law Commissions are now taking a major part in advising the Government and, through them, the country as a whole, on the legal issues that spring from our membership of the European Communities. Much work has been done, for instance, on the European Draft Convention on Contractual and Non-Contractual Obligations: this is concerned with choice of law in contract and in tort. Another matter being examined with a view to early advice is a draft directive on commercial agents.

The Law Commission has also let me know that it is expecting soon to be able to present final reports on a number of very important topics, including joint ownership of the matrimonial home, and use the enjoyment of the household goods, on the mental element in crime and, again in criminal law, duress and general defences. In the more workaday fields of Statute law revision and consolidation, the work in the Law Commission and under its guidance continues unabated.

In the light of what I have ventured to say, I think it right to pay tribute to the Law Commission in this direct way. Your Lordships may not he disposed to agree with a week-end newspaper article which spoke of the Law Commission retreating to obscurity under the Lord Chancellor's guidance. I hope that what I have said may successfully dispel that remarkable comment now that we are facing this new product of the Law Commission; and we are grateful to the admirable initiative of the Back Benches in taking it over.

If I may briefly indicate at this stage why the Government support the Bill wholeheartedly, the reasons is this. As we have been told so attractively today, the courts have for some years shown by their judgments that they dislike the use of certain exemption clauses. Indeed, as we have been told—and attractive illustrations have been given of the fact—a number of learned judges and noble and learned Lords have (in the best traditions, I believe, of the common law) done what they could to mitigate the worst effects of the social problem of the inequality of bargaining power between the supplier and the consumer and the big business and the small; and have sought, to use the words of the noble and learned Lord, the Master of the Rolls, to get round it—a technique at which he became, indeed, the master.

The weaker party often has to choose between giving up his common law rights to expect a contract to be carried out effectively or not to contract at all. The judges have tried to remedy mischiefs in that area but, as I think he willingly conceded, Parliament alone can strike at the roots of the problem we are facing. I think it really is intolerable that in an exercise in avoidance and ingenuity, it should be left to the judges to correct the mischief. The judges, and now Parliament, with the Law Commissions, have acted together to improve the law to meet changing social needs. Here is a sphere where co-operation between the Judiciary and Parliament (which I regard to be at the root of our continuing system) has proved of value.

My Lords, the Bill, as I see it, has two main purposes. First, it advances the work on the supply of goods, as we have been told, begun by the Law Commission in 1965 and by Parliament in 1973 with the Supply of Goods (Implied Terms) Act. That Act dealt with goods sold or supplied on hire purchase or given in exchange for trading stamps. It introduced widely-welcomed controls on avoidance of liability for breach of the obligations implied by law in such contracts. This Bill introduces, in Clauses 7 and 20, similar much-needed controls on other ways in which goods are supplied, such as hire, exchange and contracts for work and materials such as work done in garages or even the supply of false teeth. Thus most, if not all, contracts for the supply of goods will be much safer for the consumer to undertake when this Bill becomes law while many business buyers will also enjoy certain additional valuable rights in this field. But there is still a great deal of work to be done in this area: the buyer's rights in contracts for hire, exchange and so on are implied at common law. A study which could lead to legislation has already been begun by the Law Commission for England and Wales and I look forward to receiving their recommendations.

The other, and major part, of the Bill is concerned with more than the supply of goods. Aspects of the supply of goods are involved, but primarily this part of the Bill breaks new ground. as my noble friend Lady Phillips has pointed out, by protecting buyers of services as has never been attempted before. The Bill does so in two ways. First, there are the controls on the exclusion or restriction of liability for negligence; and the Government fully endorse the way in which that has been dealt with in the Bill. We think it quite wrong that someone in the course of business should be able unfairly to avoid his legal liability for negligence, especially where this is done by means of some small print tucked away at the end of the contract or on the back of a ticket or in a notice on the wall. Businessmen may think in future, as no doubt most do already, that it is far better to apply forethought to avoiding being negligent than to avoiding their liability for negligence.

In the Government's view, it is right to distinguish, as the Bill does, between personal injury or death and other loss or damage. Where negligence which arises in the course of a business results in injury to life or limb, liability ought not to be avoidable at all. For property damage, on the other hand, a restriction of liability could, in many cases, be reasonable. That is the test which is applied. In the case of services like dry cleaning, for example, it would make little economic sense to ask all customers to pay appreciably more to cover the occasional fur coat handled by the firm. It may therefore be reasonable for the cleaner to restrict his liability in cases of expensive goods where their value is not declared. In such cases, the customer's own insurance could then cover the risk.

It also seems sensible that there should not be any discrimination between consumer and businessman in this context. For death or personal injury, I can see no reason why the private customer and the business customer should be treated differently. For example, a defectively repaired electric drill could injure a householder or a self-employed building contractor, and the result should not be different. In cases of property damage it can be difficult at the purely practical level for the supplier of the service to know whether he is dealing with the person as a consumer or as a businessman. In addition, it is hard to see why, even in business dealings a firm should be able to avoid liability for its own negligence in an unreasonable way.

The second way in which the Bill materially improves the position of the users of services is that it tackles the other type of small print clause—the type that, for instance, allows the contract to be broken or drastically-reinterpreted by the supplier to his advantage. I believe that such clauses are every bit as unfair and undesirable as those which allow avoidance of liability for negligence. Few consumers reading the typical, "We reserve the right to…" clause in fact ever stop to consider how large a hole in the contract that might represent. Obviously, some of these clauses in some contexts are fair and reasonable: one must concede that situations do arise which are outside the control of the provider of the service. On the other hand, we believe it to be unjust if firms use such clauses to suit their convenience and profit, irrespective of what the consumer believes—and reasonably believes—he has contracted to enjoy.

The Government hope that the House will take the view that consumers should be protected from the unreasonable use of such clauses. We have had discussion of the reasonable test. I have noted that the noble and learned Lord, Lord Hailsham of Saint Marylebone, has not displayed trop de zele in respect of that test. I doubt whether it would really cause very great difficulties. It is not a new idea, after all. It has been part of the Statute law since the Railway and Canal Traffic Act 1854. However, I have not been able to discover any cases which arose under the provisions of that Act which have indicated one way or another whether the interpretation of reasonableness is going to provide the judges with any very great difficulty.

Something we can note is that contracts between businessmen covered by the 1973 Act at any rate do not appear to have been made less certain because they could be subject to a test of reasonableness. Nor am I convinced that the test will create more uncertainty than has the doctrine of fundamental breach, which was called in aid by the noble and learned Lord, Lord Denning, in all its various forms. Both Law Commissions recommended the reasonableness test as an appropriate form of control even though they differed as to the time at which it should be applied. The Bill contains the Scottish version of the test. It will no doubt have given great satisfaction to my noble and learned friend Lord McCluskey that the acceptance of the Scottish version has been deemed to be preferable by those who have spoken in the debate. I believe that the Scottish approach, by limiting the importance of considerations attaching to a particular case, should facilitate the creation of case law and so help to reduce future uncertainty.

We have had a discussion on the burden of proof. All I can say about it at this moment is that the minds of those concerned with the matter are not closed to argument that the Bill has the burden wrong. It is a matter which will in any event need to be looked at again, in view of the difference within the Bill itself between the provisions in the England and Wales section and the Scottish section. If the Bill is given a Second Reading, we shall clearly have to examine this again in Committee, and perhaps after seeking further advice from the Law Commissions.

The Bill seems to me to hit the right note. It represents a great advance in consumer protection but it recognises economic realities. Benefits and costs have been finely balanced; and where the latter appear to outweigh the former—as on insurance, for instance—an exception from the control has, very sensibly, been made.

Finally, I want to say a word about the form of the Bill. It is different from either Bill in the Law Commissions' report. This is in part because it contains certain new measures and goes beyond the Law Commissions' recommendations in some respects, and also because the provisions have been re-ordered. The main change is that we now have a single Bill for the whole of the United Kingdom. I expect that will be welcomed by the House as a whole. I am sure the House will favour provision of a separate part for Scotland, which makes the Bill as a whole easier to follow and has enabled its basic proposals to be framed in terms of the different systems of contract both North and South of the Border. I do not know that I need elaborate in any detail on the major differences between the Scottish and English parts. Perhaps we could examine those in greater detail when we come to the Committee stage.

I was asked by the noble and learned Lord, Lord Morris of Borth-y-Gest, about views on a number of potential cases which he raised. It is with some trepidation that I venture a shot at answering one or two of them. He asked whether all transactions such as the valuation of shares, or giving of advice, have to be reconsidered in the light of the Bill. In England and Wales, businessmen's contracts are controlled, and if there is reliance on the advice or valuation by a person who is not in a contractual relationship with a businessman, the question whether there is a valid exclusion of liability may have to be tested under the provision, for notices, of Clause 2(1) and (2).

Then a question was asked whether a contract for hire of a television set fell within Clause 7, and whether there was overlap with Clauses 2 and 3. The answer, I am so advised, is that if the television set does not work, this is almost certainly a breach of the common law obligation of fitness for purpose, so that Clause 7(2) would apply. If negligence were in issue, Clause 2 would also apply. There could be an overlap, but I do not think it matters.

Then there was a question about bankers' references, with the cover "without any responsibility", and whether those were controlled. A purported exclusion of liability by notice in a voluntary transaction such as a banker's reference would, I think, be controlled by the provisions of Clause 2 but, as the noble and learned Lord, Lord Denning, pointed out, these are matters on which the courts themselves will have to adjudicate in due course and I hope I have not been foolish in attempting to answer them in anticipation of the examination that may be required in a given case.

May I venture to doubt the anxieties that have been expressed, that the Bill will result in a massive increase in litigation. I am inclined to agree with the noble and learned Lord, Lord Morris of Borth-y-Gest, on this point. I do not think that need be a consequence of the terms of the Bill.

I feel I should not end without thanking and complimenting the Parliamentary draftsmen, both for England and Wales and for Scotland, who have assisted the sponsors at the Government's request. It is very interesting that there has been very little criticism of the drafting on this occasion—an unusual experience in technical Bills of this kind—and I am sure it will give comfort to those who have done the work. Again, my Lords, I am most grateful for the support which the Bill has received and I shall myself continue to assist the noble sponsor in any way I can.

5.52 p.m.

Lord JACQUES

My Lords, I am grateful to all noble Lords who have taken part in the debate and thank them for the very strong support they have given to the Bill. Particularly do I thank the noble and learned Lord the Lord Chancellor, who has replied to the more tricky points and relieved me of that obligation.

There were a number of points with which I should like to deal very briefly. First of all, the question of the Title was raised both by the noble Lord, Lord Lyell, and the noble and learned Lord, Lord Hailsham. We have an open mind on the Title and would be very pleased to receive suggestions. The question of cost was raised. Yes, it is going to cost money to consumers, but I believe there is a general opinion among the public that there are some costs which should not be borne by the individual, but by consumers in general instead of the individual. It is in response to that public opinion that we have this Bill.

The noble and learned Lord, Lord Denning, raised a very interesting point; namely, whether there should be a limit to the liability to the insurance cover which would be available. That is a very interesting point, but I should not like to commit anybody at this stage because I can see some difficulty in deciding what was the insurance cover available. I think the matter would need a great deal of thought before anyone could venture up that road.

Some relief or protection for the tour operator was pleaded for by the noble Lord, Lord Lye11. I will not take up the time of the House at the moment about this, but I would point out to him that this matter was very fully ventilated on the Report stage in another place and is fully reported in Hansard. The noble Lord will be able to see there the Government view on the question which he raised.

The co-ordination of documents, which was raised by the noble Lord, Lord Airedale, is quite a difficult matter because the Bills come into operation at a different time. But the point has been noted by the Department and, in so far as anything can he done to prevent or mitigate inconvenience, I can assure the noble Lord that it will be done. I think I have covered the principal questions not covered by my noble and learned friend the Lord Chancellor. Once again, may I hope that I shall have an equally pleasant time at the Committee and Report stages.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.