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The steps required before an onerous or unusual term of a contract will be held to be binding
A recent case in the English Court of Appeal refines what used be referred to as the “red hand rule”, so-called after Lord Denning, a revered judge of a remarkable 38 years (up until the early 1980s), suggested that certain contract clauses “would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice [of the clause] could be held to be sufficient”.
The case affirms the position that, where terms are incorporated by reference into a contract, at least in certain circumstances, any particularly onerous term will not be given effect unless the other party’s attention has been specifically drawn to the term. But there is a high threshold required to show that a clause is onerous or unusual.
The term in question in the case was a so-called “pay first clause” contained in an insurance contract, which in the event the court did not regard as onerous or unusual. But the principle – which the court preferred to describe as the “onerous clause doctrine” – has a broader application to both consumer and commercial contracts, even if may generally be unlikely to apply to commercial transactions in financial markets such as insurance where parties are represented by professional agents whose duties will include explaining the meaning and effect of the contracts they conclude for their principals. In short, the doctrine is all about “notice”, ie. doing all that is fairly and reasonably sufficient to bring a clause to the attention of the other party, where that party is not otherwise already aware of it. Its effect, where it applies, is that the onerous clause in question will be treated as not having been incorporated into the contract, or at least as not having operative effect.
But ultimately the question of how onerous the clause needs to be to fall within the doctrine, and the question of what will amount to fair and reasonable notice, are questions of fact and degree that a court will need to consider on a case-by-case basis.
In the present case the court concluded that the insurance contract in question was a commercial contract between parties of broadly equal bargaining power, in which it said a court should be slow to intervene.
** MS Amlin Marine NV v. King Trader Limited & Ors [2025] EWCA Civ 1387
By Brian Perrott and Patrick Knox
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