In general, under English law the parties are free to make their own bargain, and the courts will not interfere or question whether or not the terms are unreasonable - nor will they listen to an argument that a particular contract is unreasonable.
As always there are exceptions however, the major ones being as follows:
A contract which cannot be performed without doing something illegal is void. One bank robber can't sue the other for his share of the proceeds.
This includes contracts 'tending to promote sexual immorality'. In 1866 a coach owner who hired his coach to a prostitute, knowing that she would use it to attract custom, tried to sue for the hire charges, and lost the case for this reason.
This is also one of the reasons for difficulty in ensuring that 'living together' agreements are enforceable - if providing or consenting to sex were to appear in the contract, then it is likely that the agreement would be held to be illegal.
I once won a case for an employer in the Industrial Tribunal on this ground when it came out that there was an agreement that part of his pay was to be 'on the side'.
Applies to exclusion clauses in contracts made where at least one party acts in the course of a business.
A clause seeking to exclude liability for death or personal injury caused by negligence is void.
A clause seeking to exclude liability for negligence will only be enforced to the extent that it is reasonable.
If one party is a 'consumer' or the contract is a 'standard form' then a clause excluding or restricting liability for breach of contract will only be enforced to the extent that it reasonable.
Certain type of contract (eg contracts of insurance) are excluded.
As a result of an EC directive, principles similar to those in the Unfair Contract Terms Act 1977 were extended to harsh clauses other than exclusion clauses in many contracts which are 'standard form' and where one party is a 'consumer'.
The regulations apply when:
Some types of contract (including contracts of employment) are excluded.
Contracts covered by the regulations must be in 'plain intelligible language', and any doubt about the meaning of any term will be decided in favour of the consumer.
The Regulations do not apply to contract terms which deal with the main subject matter of the contract, and whether or not the 'price is right' - provided such terms are expressed in 'plain intelligible language'.
If a term is unfair (as provided for by the regulations), it will not be binding on the consumer - although the rest of the contract will stand.
An unfair term is defined for the purposes of these Regulations as one which, taking into account:
contrary to the requirement of 'good faith', causes a significant imbalance in the rights and obligations of the parties, to the detriment of the consumer.
The Regulations give a (fairly long) list of examples of terms which may be unfair, including terms:
Where one party is in a particular position of trust in relation to the other (parent/child, child/aged parents, solicitor/client, religious advisor/disciple, and more rarely husband/wife and banker/customer), a contract may in certain circumstances be voidable - In other words, the contract stands but the victim may be able to cancel it.
Actual or threatened violence to the person, or (in certain circumstances) illegitimate commercial pressure, can result in a contract being voidable.
There's a difference of opinion amongst judges as to whether this is a separate heading or comes under 'undue influence'. According to Lord Denning, this may apply when a party without independent advice enters a contract on terms which are very unfair, when his bargaining power is impaired.
Provisions in contracts in unreasonable restraint of trade are void. To be reasonable, it must be reasonable both as between the parties, and as regards the interests of the public. The restriction must be no wider than is necessary to protect legitimate interests. Note that the courts will not rewrite such a provision to make it reasonable, they'll just cross it out.
A term may be a 'restraint of trade' if it restricts the other party's ability to carry on his business.
It may be 'unreasonable' if it goes further than is necessary to protect the legitimate business interests of the other party.
Often, employment contracts will contain terms which would restrict who the employee may work for after the contract ends. If such a term goes further than is reasonably necessary to protect the legitimate business interests of the employer, it will be void. To decide whether or not such a term does go further than is reasonably necessary will depend on all the facts of the case.
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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This page was last updated 20 January, 1996.
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© Roger Sinclair roger@egos.co.uk 1996 - All rights reserved - see full copyright details
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