Reasonableness Test Application in Contract Law: Analysis

This report provides an analysis of the Reasonableness Test in contract law, focusing on the application of exclusion clauses and the Unfair Contract Terms Act (UCTA) of 1977. It examines the concept of hire purchase agreements and how they relate to the test, emphasizing that the test is not applicable for a contract of sale. The report delves into the legal framework surrounding exclusion clauses, including the requirements for reasonableness under UCTA. Several case studies, including Mitchell v Finney and Regus v Epcot Solutions Ltd., are discussed to illustrate how courts assess the reasonableness of contract terms. The analysis also includes Goodlife Foods Ltd. v Hall Fire Protection Ltd. to demonstrate the practical application of the test. The report concludes with a discussion of how the test of reasonableness is applied and interpreted within the context of contract law.

Test of Reasonableness
The contract of hire purchase is a contract in which the owner of the goods provides the other
person to hire the goods for a duration of time after payment of installments. Under the
agreement of hire purchase the hirer has an option of buying the goods towards the end of the
agreement after all the installment is paid. The hire purchase agreement does not amount to a
contract of sale rather it is considered as a contract of bailment. The hirer under the contract is
not necessarily buying the goods, which makes this as a contract of bailment, wherein the hirer is
entitled to use the goods but is not a legal owner while the terms of the contract subsists. Since,
the contract of hiring a bicycle does not fall under the purview of a contract of sale the exclusion
of implied terms do not apply, so the test of reasonableness has to be taken into consideration to
understand the legality of the clause.
In any contract the exclusion clause is a term of contract which is inserted with the purpose of
excluding or limiting the liability of a party for any breach of contract or negligence. Under the
Unfair Contract Terms Act, 1977, any individual relying on the exclusion clause is under the
obligation to prove that the clause is reasonable. The case of Mitchell v Finney [1983] 2 All ER
737, is the House of Lords judgment in which the subjectivity of the reasonableness test was
determined. The section 3 of UCTA is related to the relationship wherein one party to the
contract deals as a consumer and the other parties’ written standard terms of business mentions
that – “any term which excludes or restricts his liability for breach of contract.”
Test of Reasonableness
Under the section 11 UCTA for satisfying the reasonableness test the term of the contract should
be fair and reasonable and should be known to the parties when the contract was made. Further,
the Schedule 2 of the UCTA provides additional guidelines for reasonableness which comprises
of various factors, for instance the knowledge of the customer of existence of the term etc. In the
case of Regus v Epcot Solutions Ltd. CA 15th April 2008, the Regus Company entered into a
contract to provide accommodation to run IT training courses by Epcot. The terms of contract
limited the Regus’ liability if financial losses are suffered by Epcot. The High Court ruled in
favor of Epcot by declaring Clause 23 of the contract unreasonable under UCTA whereas the
Court of Appeal reversed the decision and held the clause reasonable.
Under the case Goodlife Foods Ltd. v Hall Fire Protection Ltd. (2018), Goodlife owned a frozen
food and the Hall Fire was into selling automatic fire sprinkler systems, both the companies
entered into an agreement for fire detection equipments but still fire broke out and caused
damage to the property. The court held that the Clause 11 of the agreement was an exclusion
clause and was reasonable under the UTCA.
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