New ‘onerous clause doctrine’ requires high threshold before court will intervene
Onerous and unfair clauses frequently test the courts. It’s unsurprising given that all parties to a commercial contract will be seeking to robustly protect their own interests. But if circumstances arise such that one party seeks to rely on a harsh clause, the other party may challenge the provision.
A recent CA decision has been described by lawyers as potentially becoming a leading judgment on the issue. An allegedly onerous clause arose in the context of marine insurance, but the appeal decision has wide implications for all commercial contracts involving standard terms.
In MS Amlin Marine v King Trader & Ors [2025] EWCA Civ 1387, the CA had to decide the proper interpretation of a marine insurance policy. The policy included a ‘pay first’ clause found in standard terms and conditions which the insurance certificate did not refer to. The CA agreed with the High Court that the clause had been incorporated, and was therefore binding.
Onerous clause doctrine
A key focus for the court was the so-called ‘red hand rule’, enunciated by Lord Denning in a 1956 decision who stated: “The more unreasonable a clause is, the greater the notice which must be given of it”. He added: “Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.”
The appellants claimed the ‘pay first’ clause was “harsh, extremely unfair, onerous and commercially unreasonable”. Master of the Rolls Sir Geoffrey Vos analysed the key cases on the red hand rule. He effectively renamed it the “onerous clause doctrine” which provides that:
“…where a particularly onerous or unusual term of a contract (an onerous clause) is contained in one party’s standard terms, and where the other contracting party does not actually know of that term, it will not bind the other contracting party unless the party seeking to rely upon it shows that the clause in question… was fairly and reasonably brought to the other contracting party’s attention”.
These are questions of fact and degree; and a high threshold is required to show that a clause is onerous or unusual in the first place.
The CA ruled that the trial judge’s decision was correct and that he ‘pay first’ clause was neither onerous or unusual. Sir Geoffrey noted that the parties had broadly equal bargaining power, and the court should therefore be slow to intervene.
What does this mean?
The decision is important for all parties to commercial contracts where reliance is placed on unusual or burdensome clauses – especially if incorporated by reference to standard terms and conditions.
Where the parties are of equal bargaining power, there is a high threshold to cross before the court will be willing to intervene and decide such a clause is unenforceable. It is a reminder of the need to take expert legal advice before entering into any commercial contract.
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