The Red Hand Rule and Unsigned Agreements

Friday October 4, 2013

Unusual, onerous or unreasonable contractual terms

It is said that a verbal contract isn't worth the paper it's written on.   However, in everyday life we make a myriad of contracts, whether knowingly or unknowingly. 

Examples of these may be when you park your car in a carparking building, when you buy from an online store, when you drop your clothes off for dry-cleaning.  When you walk into a supermarket or go to a restaurant and eat a meal.

We do not even think about these common transactions and often the terms and conditions we are binding ourselves to whether they be displayed on the carpark's entranceway, the websites conditions page or on the wall of the supermarket or restaurant. We do not think about them, that is, until they go wrong.

When they do go wrong, often we find that there are unexpected terms and conditions that are seemingly imposed on us that, had we known about them when we entered the transaction, may have meant that we wouldn't have entered the transaction at all. 

An established (but little known) legal principle is that where there is an unsigned agreement, such as the terms of trade often found in the examples given above (like on the back of a drycleaning receipt), and there is an unreasonable or onerous clause then the trader must draw that clause to the attention of the consumer.

Or expressed another way "the more unreasonable a clause is, the greater the notice which must be given of it".  In the case of Spurling  it was decided that some clauses would be so usual or unreasonable that they would need to be printed in red ink with a red hand pointing to it (to adequately draw the other parties attention) before the notice could be held to be sufficient.

The case of Spurling dealt with a clause purporting to exempt a carpark proprietor from liability for personal injury.  In the course of the judgment the view was adopted,  without saying the clause was completely unenforceable for unreasonableness, that the clause was so wide and so destructive of rights that the Court should be wary of holding any person bound to it unless it had been drawn to their attention explicitly. 

Clearly the rule only lends itself as a protection against rules and terms which are unreasonable or unusual and it may depend on an industries particular practices as to whether they are unreasonable or unusual.

The difficulty with signed documents is that the rule in L'Estrange v Graucob (1934) 2 KB 394 applies, which is that knowledge of the contents of a contractual document will be presumed to be known by the person signing it.  The requirement of reasonable notice and therefore the red hand rule, does not apply to signed documents. 

The moral of the story:

  • You might have an argument if there is an unreasonable or onerous clause in terms of trade a party is attempting to enforce against you; and
  • Always read your contracts before signing.

For more information please contact Ben Eagleson, Senior Solicitor, Holland Beckett.