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Whether such clauses(EWCA Civ 1013) were generally speaking, fair and reasonable hence enforceable under the English law of contract?

Long Mint Limited v Rye [2005] EWCA Civ 1013

Summary

This is an action brought by Long Mint Limited against Rye [2005] EWCA Civ 1013 concerning the validity and enforceability of a set of contractual terms of a business agreement. The Court of Appeal had to decide whether such clauses were generally speaking, fair and reasonable hence enforceable under the English law of contract. The case is one of significance in the development of the court's jurisprudence on the interpretation and implementation of contractual clauses, specifically where these are found to be onerous or unfair to one of the parties.

Facts

There was a contract of business by Long Mint Limited with Mr. Rye that had some key terms in the contract. It stipulated different obligations, and each was a right of the parties to the contract, to include performance and payment, among others, with a provision for termination. A conflict arose when Long Mint attempted to enforce some terms of the agreement that Mr. Rye disputed.

Rye alleged some of these terms were unduly onerous, vague, and one-sided in nature, with undue favoritism towards Long Mint. He claimed, inter alia, that the said terms were drafted for the unreasonable benefit of Long Mint and to impose disproportionate burdens upon him. Rye then refused to accept these terms whereby an action was commenced by Long Mint to enforce the agreement.

Issues

The following were the main issues that parties brought for determination in the case:

1. Whether that the disputed contractual terms in the contract were clear and unambiguous.

2. Whether such terms are fair and reasonable in English Contract Law

3. Whether clauses that are possibly onerous or harsh can be enforced.

First Instance

The matter started in the High Court before the trial judge who took into account the proper articles of contract and the context of the arrangement of the agreement. The High Court mainly involved with the doctrines regarding equity and the reasonability of the terms of the contract.

The trial judge made a variety sided judgment with Rye on the basis that some of the agreement terms were absolutely unfair and extravagant. The High Court, on appeal, held that the sections were not enforceable precisely because they did not fulfill that requirement relating to commercial contracts that the provisions in the contract must at least be fair and reasonable. The court has held that the parties must be Accord and satisfactor is declared by the parties. Although the parties have the right to contract in the manner in which they wish, the terms cannot prove to be one-sided and put a disproportionately heavy obligation on one party.

Decision on Appeal

Long Mint took the decision of the High Court to the Court of Appeal. The latter advanced the contention that such clauses were standard in business agreements, and as such should be binding. On the facts, the Court of Appeal carefully considered the words used in the Contract, the contract's context, doctrine, and the rule of contract law.

The Court of Appeal dismissed the appeal and held that the clauses in dispute were unfair and hence unforceable. On assessing the fairness of the contractual term, the Court of Appeal placed reliance on the principle that a contract term should not only be very clear but also be fair. It added freedom to contract as an essential principle, yet freedom tempered by the requirements of good faith and fair dealing in the exchange of obligations under the contract.

The court also had to address an ambiguity in the terms. Ruled in evidence of any such ambiguity in the terms that the same had, therefore, to be construed against the party that propounded or drafted them, meaning Long Mint. This principle is the contra proferentem—that ambiguous and obscure terms of a contract are to go against the party drafting or drafting them.

Comments

The decision in Long Mint Limited v Rye serves as a very useful reminder of several general principles in the English law of contract. They include:

1. First of all, the terms in the contract have to be fair and reasonable. The courts will never compel performance of those clauses that place excessive or disproportionate obligations on one party.

2. Clarity and Ambiguity: The terms of a contract should be clear w.r.t. and not ambiguous. Any ambiguity in the terms, in these circumstances, shall be interpreted against the party to the agreement who drafted it, thereby making the point that who drafts any agreement must do so with care and precision.

3. Freedom of Contract: Where freedom is granted to the parties to negotiate and agree on the terms of the contract, such a grant of freedom is tempered by the requirement that it must be fair. Courts will interfere when terms are so one-sided that they are excessive.

4. Commercial Context: Such is the commercial context in which the contract was formed. The courts will consider the commercial realities in determining the fairness of the terms of a contract vis-à-vis the relative bargaining powers of the parties.

5. Precedent to Future Contracts: This case sets a very good precedent for enforcement of terms of contracts so entered into commercial transactions. This follows that actually, parties have to ensure that contracts are balanced and fair with express and unequivocal terms.

This, in effect, means that Long Mint Limited v Rye is a further example as to why fairness and clarity regarding commercial contracts should exist. The decision simply reiterates that although freedom of contract is wide-ranging, it is not inalienable and is thus always susceptible to judicial intervention against any clause that may be proven to be unfair or unreasonable. This, thus, leaves an extremely clear precedent for the businesses when drafting and negotiating their contractual agreements—that they ought to be fair, clear, and lawful.

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