Reasonableness Test CASES

In English contract law, the reasonableness test evaluates whether a contractual term—especially one that seeks to exclude or limit liability—is fair and acceptable under the circumstances. It’s most commonly applied under the Unfair Contract Terms Act 1977 (UCTA).

Definition and Scope

The test requires that, at the time of contract formation, a term must be “fair and reasonable” considering what the parties knew or ought to have contemplated.

Under UCTA, particularly in business-to-business and hire-purchase agreements, exclusion clauses are enforceable only if they meet this requirement.

Application and Key Considerations

The reasonableness of a term typically hinges on factors such as:

  • Whether the term was negotiated or merely part of one party’s standard terms

  • The relative bargaining power of both parties

  • Whether both parties were well-advised, legally represented, and understood the risks involved.

  • Availability of newer legal developments indicating a shift—for example, courts may now scrutinise standard terms more closely, even in seemingly equal commercial parties.

Example Cases

  • Phillips Products Ltd v Hyland & Hamstead Plant Hire Co Ltd (1984)
    A clause deeming the driver to be the hirer’s employee was held unreasonable under UCTA, because it unfairly shifted liability despite the hirer’s limited control and opportunity to insure.

  • Last Bus Ltd v Dawson (2023)
    The Court of Appeal emphasised that simulating bargaining parity via price negotiation doesn’t guarantee fairness—particularly if standard terms were non-negotiable and no alternative was offered—suggesting a more sceptical stance on reasonableness claims in recent years.

  • Phoenix Interior Design Ltd v Henley Homes plc (2021)
    An exclusion clause hidden in baffling terms was not reasonable, especially since it was unusual, poorly communicated, and gave the seller undue advantage—weakening any claim to fairness.

Practical Takeaways

  • Burden of Proof: The party relying on the exclusion or limitation clause must prove it is reasonable.

  • Negotiated Terms Are Safer: Standalone or negotiated terms are more likely to be deemed reasonable.

  • Standard Form Terms Raise Scrutiny: Particularly where the purchaser has no bargaining power over those terms.

  • Highlight Unusual Terms: Be transparent and make onerous or unexpected clauses conspicuous to improve the chance of passing the test.