5.2.1 When does section 3 apply?
As outlined, above, it will apply to commercial contracts (not consumer contracts) where one party deals on the other's written standard terms of business in which the clause seeks to exclude the other’s liability for breach. The expression … ‘deals on the other's written standard terms of business’ is not defined or explained by the UCTA 1977, but case law seems to indicate that it is that ‘standard terms of business’ would embrace the standard terms of a third party, e.g. a trade association, incorporated into the contract by reference or by course of dealing: African Export-Import Bank v Shebah Exploration and Production Co Ltd  EWHC 311 (Comm).
Where negotiations have taken place around standard terms before the contract is made, and amendments agreed, it is a question of fact whether one party can be said to have dealt on those standard terms. However, the intention of the provision is that it should apply where there is no breach of contract at all, but where the obligation as to performance has been limited or qualified.
The burden of proving a dealing on standard terms lies with the party who alleges s. 3 UCTA 1977 applies: British Fermentation Products Ltd v Compair Reavell Ltd (1999) 66 Const. L.R. 1.
There are no definitions given to explain what ‘on the other’s standard written terms of business’ and ‘deals’ mean. McKendrick (2013, p. 199) identifies four questions that may arise:
- Does the term ‘written’ exclude contracts that are part-written and part-verbal?
To date, there has not been any case law on this issue.
- How much change to the terms is needed before they are no longer ‘standard’?
In Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56 BLR 115, it was stated that the term ‘standard’ required a party to regard them as their standard terms and ‘habitually contract on those terms’. It was a question of ‘fact and degree’ as to the extent these had been altered on this or previous occasions (per Judge Stannard at p. 131).
- What does the word ‘deals’ mean?
The word ‘deals’ has been held to mean ‘makes a deal’ so any negotiations over the terms prior to forming the contract are irrelevant if the standard terms are then used. However, if these negotiations have led to a significant difference in the terms, then the parties are not dealing on the standard terms (Yuanda (UK) Co Ltd v WW Gear Construction Ltd  EWHC 720 (TCC),  1 All ER (Comm) 550).
- What does the word ‘other’s’ mean?
In some industries, such as construction, it is common practice for organisations to produce model forms of contract for parties to use. It is not clear whether section 3 applies to standard terms produced by third parties. In the case of British Fermentation Products Ltd v Compair Reavell Ltd  2 All ER (Comm) 389, it was held that it did not as the model form used was not the defendant’s own standard terms.