Suisse Atlantique v NK Rotterdam, [1967] 1 AC 361, UKHL
Citation:Suisse Atlantique v NK Rotterdam, [1967] 1 AC 361, UKHL
Rule of thumb:Do onerous contract terms done by everyone in a certain economic sector have to complied with? No. Where a contract term is onerous and it is the same amongst all the businesses in a particular sector, this clause is more likely to be onerous & unenforceable because it was not negotiated and fairly agreed to.
Background facts:
The facts of this case were that vessels/ships were chartered/rented for a certain amount of time, and, if the person renting the ship was late they had to pay a certain rate, which was very far above the rate they would pay for having the ship if they had booked it. This price for lateness was essentially pretty much the same all over the industry, and it was in dispute in this case. The ship-renter in this case was late but they refused to pay the very high rate arguing that the term was invalid, the ship-owner believed that it was valid, and so the matter ended up in Court.
Parties argued:
The ship-owners argued the term was valid - they were able to demonstrate how this was the rate used all over the industry. They argued that this rate was customary in the industry, and deemed fair by all meaning that it could not be said to be onerous. The defenders stated that terms used widely across the industry could not be said to be onerous. They also explained the rationale behind the term. They explained how when people were late it had a serious knock-on effect on the business as it could potentially delay other people getting their chartered boat and cause mayhem in their business, and they had to deter this. Moreover, they provided further accounting evidence to show that even if it was a handsome fee, it was certainly not extravagant and could certainly not be called a penalty rate. The ship-renter argued that the term was excessive, and they explained how lateness was dealt with by other transport vehicle rental sectors without using such rates. The ship-renters argued that they would have gone elsewhere but for the fact it was the same all over the industry, meaning they had no choice but to accept it. They ship-renter argued that the fact it was excessive and they had no choice but to accept it meant that it was onerous contractual term that had not been properly negotiated, thereby making it invalid.
Judgment:
The Court upheld the arguments of the ship-renter in this matter. They stated that the rate though not a penalty was excessive when looked at objectively and therefore onerous. Importantly, the Court held that fact that because this excessive rate, falling short of being a penalty, was the same all over the industry, this actually indeed made the rate onerous and inapplicable. Where there is the same excessive rate or term agreed and used by people all over an industry, and it is excessive, then it is deemed to be onerous and invalid as onerous terms have to be individually negotiated to be valid. The excessive rate used all over the industry did not have to be paid by the defender in this matter. This was a landmark case - any time people in any industry try to up their prices or leverage their terms together across the full sector, then these do not have to be paid or honoured by people because they are deemed legally to be onerous terms that are inapplicable (This nowadays may fall under the competition law subject but people still have the option of making onerous terms arguments to object to complying with burdensome terms and conditions used across a full sector.
Ratio-decidendi:
‘In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take it or leave it. And if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining’, Lord Reid
'If he did understand and object .. he would ... be told he could take it or leave it. And if he went to another supplier the result would be the same. Freedom of contract must surely imply some choice or room for bargaining', Lord Reid
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.