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Guarantee - Unfair Contracts? |
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The High Court recently held that the Unfair Terms in Consumer Contracts
Regs 1999 do not apply to a guarantee.
A guarantee had been given by a company director in respect of his own
company. When the company went bust he was asked to honour the guarantee
in favour of the bank. He argued that the guarantee was ‘unreasonable’ under
UCTA 1977, but the court disagreed, taking the view that the terms were
reasonable (even though they were on the bank’s standard terms and had not
been individually negotiated). That then led to the question of whether the Unfair
Terms and Consumer Contracts Regs 1999 might apply, although these are
only relevant to contracts concluded ‘between a seller or supplier and a
consumer’. The judge decided that they did not apply – note that this was not
because of deciding the director was not a ‘consumer’, but instead because a
guarantee was not a contract to which the Regs could apply. Under a normal
contract the benefit flows between the two parties (ie both get and receive
something), whereas under a guarantee the contractual benefit flows one way,
thus leaving no scope for balance or imbalance.
The end result is that guarantee agreements are outside the Unfair
Contracts provisions. See note on Bank of Scotland v Ruben Singh [2005]
in [2005] NLJ 1855.
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January 2006 |
