In determining reasonableness, the guidelines are given in the 2nd Schedule of the UCTA. Firstly, it is relevant to consider the strength of the bargaining positions of the parties. In the case of Smith v Eric Bush, an exclusion notice in the agreement was void under UCTA. The courts viewed that it was not fair and reasonable terms in the contract. Moreover, Lord Griffiths drew attention to the evident inequality in bargaining power present in the case and brought justification to the weaker party.
Secondly, it is relevant whether the parties had an opportunity of entering into a similar contract with other providers without having to accept a similar term. The courts will deemed the contract as unreasonable if the exploited party did not have a choice but to enter into a contract with the sole provider.
Thirdly, reasonableness also takes into account the question of whether the parties knew or ought reasonably to have known of the existence and extent of the term. In AEG (UK) Ltd v Logic Resource Ltd, it was held that to satisfy the reasonableness requirement, the defendants need to know or ought reasonably to have known the term, irrespective of the fact that the clause had been incorporated as a term. Therefore in instances where the parties do not have knowledge on the existence of the terms, the courts will not impose implied knowledge on the terms and will bring justification on the party who did not have knowledge on the terms.
In regards to implied terms, the courts sometimes need to imply terms to make the contract work. The terms can be implied by statue for example, the Sale of Goods Act which states that the seller has right to sell goods, implied warranty that goods are free from in cumbrances in favour of third parties and implied condition that the goods sold by description shall correspond with the description. In the case of Grant v Australian Knitting Mills , the defendant was awarded damages for dermatitis contracted as the underpants bought is not of merchantable quality.
The courts may be required to imply a term into a contract if the parties have not specified the term in their bargains. A term may be implied if it is necessary to give business efficacy to the contract. In Moorcock case, it was an implied term that the owners of the wharf should take reasonable steps to ensure that the wharf was safe for use even when it was not explicitly stated in the contract.
Moreover, terms may also be implied by the custom of a particular trade and a series of contract between the same two parties. In the case of Mount v Oldham Corporation , it was established that it is a well known custom in the educational world that a parent wishing to withdraw his child from a school must give a term’s notice or pay a term’s fees in lieu regardless of whether it was stated in the contract. In this case, the court has interfered to bring justification to the school.
Some terms may be implied by common law in certain types of contract to ensure that the contracts are efficacious. In the case of Liverpool CC v Irwin, , it was held that since the contract contained no covenants by the landlord, the court could imply the necessary terms taking into account all the circumstances. Therefore, the court took an approach more close a resemblance of reasonableness in the absence of pre-contractual bargains.
In some circumstances, the courts will decide on whether the terms of contract is a condition or warranty and award remedies accordingly when the parties did not specify the remedies where a breach occurs. For example in Hong Kong Fir v Kawasaki, it was held that the terms was a warranty rather than a condition and determine that the proper remedy was an award of damages. Therefore the courts has interfered and decided on the justification for the parties.
In cases of unilateral contract like Errington v Errington, it was held that a unilateral offer must be kept open for a reasonable period of time. This is an illustration that the court imposed an obligation on the parties which they did not create themselves to ensure that the contract is justified.
Some contracts for example illegal contracts like gaming and wagering contracts are void ab initatio according to the Gaming Act. Therefore regardless of what the parties has contracted for the contract will be unenforceable. Another example will be the capacity to contract. The law has put in place restrictions on the powers of certain people to go into contracts. In the case of Nash v Inman , it was held that the contract is unenforceable as the contract could not be said to be for necessaries for the defendant. In such situation the courts will protect the minor against contract which are unduly harsh to the minor although the contracting parties acted on their freewill to contract.
Undue influence could be considered in the context of judicial intervention where trust is manipulated by the dominant party. In the case of Lloyds Bank v Bundy, the courts interfere by giving relief to the one who without independent advice enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate. Therefore, even when he parties are free to have their bargains, the courts will ensure fairness and reasonableness in the course of dealings.
However, in Pao On v Lau Yin Long, Lord Scarman preferred to concentrate on the doctrine of duress, he thought it was 'unnecessary for the achievement of justice and unhelpful in the development of the law to invoke such a rule of public policy'. Furthermore, in the case of National Westminster Bank plc v Morgan, Lord Scarman commented that in view of the increasing growth of statutory restrictions upon freedom of contract, it was questionable whether there was ‘any need in the modern law to erect a general principle of relief against inequality of bargaining power’. This comment creates a challenging problem of reconciling with the above case references, which has brought justification on what the parties did not initially bargain for. In the view of Lord Scarman, he expressed a strong reluctance to accept that the parties should be given equitable remedies.
In conclusion, in many cases illustrated above, the interventions are used to justify what the parties did not bargain for. Although in the case of National Westminster Bank plc v Morgan, Lord Scarman took a different approach and commented that modern law should not interfere to give relief against inequality of bargaining power, many cases and doctrine of contract law has took into consideration of judicial and statutory interference to justify the free will of contracting parties to award equitable remedies. This shows that identical results are derived from courts even when bargaining inequality and duress commence with different position. Therefore the failure of reconciliation in modern law context does not result in the death of justifying bargaining inequality.
[1936] AC 85, PC (Australia)
