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:
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Whether the term was negotiated or merely part of one party’s standard terms
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The relative bargaining power of both parties
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Whether both parties were well-advised, legally represented, and understood the risks involved.
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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
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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.
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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.
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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
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Burden of Proof: The party relying on the exclusion or limitation clause must prove it is reasonable.
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Negotiated Terms Are Safer: Standalone or negotiated terms are more likely to be deemed reasonable.
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Standard Form Terms Raise Scrutiny: Particularly where the purchaser has no bargaining power over those terms.
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Highlight Unusual Terms: Be transparent and make onerous or unexpected clauses conspicuous to improve the chance of passing the test.
Home » Reasonableness Test
Chubb supplied a fire extinguisher system to a church. The system's activation caused extensive damage. The court found Chubb's standard limitation clause, restricting liability to the modest contract price, was unreasonable under the Unfair Contract Terms Act 1977. Facts Chubb Fire Limited (‘Chubb’) supplied and installed a CO2 gas fire extinguisher system in the organ loft of St Mary and St Nicholas Church, Spalding, for a price of £74.50 plus VAT. The contract was made on Chubb’s standard terms and conditions. Clause 6.5 of these terms sought to limit Chubb’s liability for any loss or damage ‘howsoever arising and notwithstanding
A buyer of a vintage car sought to rescind the contract due to misrepresentation after discovering significant defects. The seller relied on a contractual clause requiring the buyer to conduct their own inspection. The Supreme Court found the clause was unreasonable under UCTA 1977. Facts The claimant, Mr Ridley, purchased a 1928 ‘Phantom’ motor car from the defendant, Ms Brown, for a sum of £450,000. During negotiations, Ms Brown, a knowledgeable collector, represented the vehicle as being in ‘excellent original condition’ and ‘ready for immediate and reliable use’. The written contract of sale included Clause 5(b), a ‘non-reliance’ clause which
A buyer withheld the final payment for goods, claiming a set-off for the seller's breach of contract. The contract contained a clause prohibiting any set-off. The Court of Appeal held this 'no set-off' clause was unreasonable and therefore void under the Unfair Contract Terms Act 1977. Facts The plaintiff (respondent), Stewart Gill Ltd, agreed to supply and install an overhead conveyor system for the defendant (appellant), Horatio Myer & Co Ltd. The contract was based on the plaintiff’s standard terms of business. The purchase price was to be paid in instalments, with the final 10% due 30 days after completion.
The Council suffered a £1.3m loss from faulty software supplied by ICL, which miscalculated the local population. The court found ICL's contractual liability limit of £100,000 was unreasonable under the Unfair Contract Terms Act 1977 and held ICL liable. Facts St Albans City and District Council (‘the Council’) contracted with International Computers Limited (‘ICL’), a substantial software company, for the supply of a computer system to be used in the administration of its Community Charge register. A fault in the software, which was intended to provide a reliable population figure, caused the population of the district to be overstated. This
A contractor built a swimming pool shallower than specified. As there was no loss in financial value, the court denied the full rebuilding cost, instead awarding damages for 'loss of amenity'. This established a reasonableness test for contractual damages. Facts Ruxley Electronics and Construction Ltd (the appellant builders) entered into a contract with Mr Forsyth (the respondent owner) to construct a swimming pool in his garden for £17,797.40. The contract specified that the pool should have a diving area with a depth of 7 feet 6 inches. After completion, it was discovered that the diving area was only 6 feet
Phillips hired a digger and driver from Hyland under a contract making the driver Phillips's own employee. The driver negligently caused damage. The court held this liability transfer clause was unreasonable under the Unfair Contract Terms Act 1977, keeping liability with Hyland. Facts The first plaintiffs, Phillips Products Ltd (‘Phillips’), hired a JCB excavator and a driver for a short-term task. The contract of hire was made with the first defendants, J.P. Hyland, who obtained the machine and driver from the second defendants, A.S.K. Plant Ltd (‘ASK’). The driver, Mr Thomas, was an employee of ASK. During the work, Mr
A seller wrongfully repudiated a contract but offered to continue supplying goods on a cash-only basis. The buyer rejected this and sued for damages based on the higher market price. The court held the buyer should have mitigated their loss by accepting the reasonable new offer. Facts The plaintiffs (Payzu, Ltd.) entered into a contract with the defendant (Mrs Saunders) for the purchase of a quantity of silk, to be delivered in instalments over nine months. Payment for each delivery was to be made within one month. The plaintiffs failed to make the first payment on time because their cheque
A farmer bought defective cabbage seed which caused a catastrophic crop failure. The contract limited the seller's liability to the seed's price. The court held this limitation clause failed the 'fair and reasonable' test under statute and was therefore unenforceable. Facts The plaintiffs, George Mitchell (Chesterhall) Ltd., were farmers who ordered 30 lbs of ‘Finney’s Late Dutch Special’ cabbage seed from the defendants, Finney Lock Seeds Ltd., for £201.60. An invoice was sent with the seed which contained a limitation of liability clause on the reverse. The clause stated that in the event of any seeds sold being defective, the
