Throughout common law there are numerous references to a test of “reasonableness” or, as judges used to still call it at the beginning of the 20th century, the position of “the man on the Clapham omnibus.”
But there is a difference between the Law of Torts and the Law of Contract:
The key element of the tort of negligence is a duty to take reasonable care. This duty is usually established in each specfic case by court judgment and can arise from a variety of situations. In short, torts lived traditionally from case law.
By contrast, under the Law of Contract, it is the agreement of the parties itself which has traditionally imposed the obligations. Contracts, in a laissez-faire world, set out bargains freely negotiated between parties, so only the parties can voluntarily agree to exercise a particular level of care.
However, in the 20th century the imposition of external, social standards and statutory obligations of “reasonableness” in both torts and contract have become crucial. This is particularly true for contracts under the Unfair Contract Terms Act 1977 (UCTA)¹ which, under English law, prevents any “unreasonable” limitations of liability being effective in contracts.
But what is “reasonable” and “unreasonable” ? Well, the statute has a general response and states that judges in deciding this issue must have regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. And the relevant circumstances are set out (in a non-exhaustive list) in Schedule 2 to UCTA 1977 and include:
- The relative bargaining strength of the parties.
- How common this type of clause is in the market.
- Whether the buyer was aware of the clause, or should reasonably have been so aware. Whether the parties were legally advised.
- Whether the clause was open to negotiation.
Certainly, in contract negotiations we must be careful that in promoting our own interests we do not overstep the boundary of “reasonableness” and risk resulting ineffective or unenforceable clauses in a contract. In this regard we are often well-advised to expressly agree in the contract, in cases of doubt, that the respective clauses are “fair and reasonable” and provide information to support this. In this regard English law is not unique.
¹The UCTA has a limited impact on international contracts as it does not apply to cross-border sales of goods.