When contractual terms go from protective to void

Can you agree any contractual terms you choose, as long as they are legal? No – although generally, in English law, parties remain free to enter into whichever contractual terms they wish, if legal, people often fail to appreciate that there are still restrictions imposed to ensure a degree of reasonableness. Although the Unfair Contract Terms Act 1977 has been in English law for some time, parties even today are falling foul of it.

A recent High Court case last month saw Mr Justice Freedman find some contractual clauses, most notably an exclusion clause, to be ineffectual. The exclusion of liability clause was so onerously drafted as to be unreasonable; this is because it sought to exclude any form of liability for conditions, warranties or guarantees if full payment was not made by the due date.

In addition to the unreasonableness of the term, Mr Justice Freedman noted that the “…apparently unusual clause is tucked away in the undergrowth of the Standard Terms and Conditions…” and they had not made the effort to highlight “…the consequences of even the slightest delay in payment.”

It was also separately noted that, in respect of interest, an unclear term of “lending rate” had been used in the contract and not defined; this stands as an additional warning to ensure the correct use of terminology and definitions in all contracts.

This case again reinforces the importance of ensuring that your terms and conditions are reviewed regularly, not just with their intended meaning in mind but also their application, should litigation ensue. Although parties are free to seek the greatest level of protection available, this can often be achieved whilst retaining the balance and reasonableness required to make them enforceable.