The Unfair Terms in Consumer Contracts Regulations 1999 do not apply where a guarantee is entered into by an experienced business man acting in the course of his business.
In Barclays Bank plc v Kufner, the defendant gave a guarantee to Barclays by way of security for a loan made by Barclays to the defendant's company. The company defaulted and Barclays sought to enforce the guarantee. The defendant argued that a set-off clause in the loan agreement that precluded any form of set-off, or cross-claim against the sums due under the agreement, was unenforceable as it was unreasonable under the Unfair Contract Terms Act 1977. He also argued that he was protected by the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) which govern unfair terms in consumer contracts, and that a term in the guarantee which permitted the principal mortgage to be released without being replaced was unfair to him as the guarantor.
The court held that the set-off clause was not unreasonable as it did not seek to bar a claim against Barclays. The defendant was an experienced, wealthy business man and there was no material disparity between the parties' bargaining powers. He had also received independent legal advice. UTCCR would apply to bank guarantees where the guarantor and the principal debtor each entered into their contracts as "natural" persons and not in the course of their trade or profession. However, neither the company nor the defendant were acting as consumers here and so the Regulations did not apply. The guarantee was not unfair and the defendant was bound by it.
Things to consider
The context in which both the principal agreement and the guarantee have been entered into is all important in determining whether UTCCR apply. If it is a business context for either, UTCCR won't apply.