Claim No: CL-2022-000527 - [2025] EWCA Civ 1387

The Owner and the Club advanced the red hand ground in their skeleton argument on the basis that there was a principle of interpretation that, where terms were incorporated by reference, a particularly onerous term was not to be given effect, unless the other party’s attention had been specifically drawn to that term. When pressed in oral argument, Mr Michael Ashcroft KC, leading counsel for the Owner and the Club, said that it was established law that, where a clause was particularly onerous, especially stringent, unreasonable or draconian (as to which there was scope for argument), there was then a sliding scale as to the degree of notice that was required to be given before that term was to be held to have effect as being incorporated into the contract. The parties called these two formulations the “red hand doctrine”, but, as I shall explain, I prefer to call it the “onerous clause doctrine”.

The authority for the red hand or onerous clause doctrine is said to derive from J Spurling Ltd v. Bradshaw [1956] 1 WLR 461 (Spurling), Thornton v. Shoe Lane Parking Ltd [1972] 2 QB 163 (Thornton), Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] QB 433 (Interfoto), Goodlife Foods Ltd v. Hall Fire Protection Ltd [2018] EWCA Civ 1371, [2018] BLR 491 (Goodlife), Bates v. Post Office Ltd(No 3: Common Issues) [2019] EWHC 606 (QB) (Bates), and Blu-Sky Solutions Ltd v. Be Caring Ltd [2021] EWHC 2619 (Comm) (Blu-Sky) (together the “six cases”).

The Owner and the Club submitted that the pay first clause was harsh, extremely unfair, onerous and commercially unreasonable. On the sliding scale of unfairness, the pay first clause was said to be at the top end.

This was seemingly not how the argument was advanced before the judge. He recorded at [58] that the Owner and the Club had argued before him that the suggestion that the pay first clause was hidden away in the thickets of the Policy supported their other arguments about incorporation and inconsistency. The judge rejected that argument on the ground that there was clear reference in the Certificate to the general provisions in the Booklet, any reader of part 1 would have appreciated that more general conditions regarding claims and disputes were likely to appear elsewhere, and that general terms and conditions were commonplace in insurance policies. On that basis, the judge held that the pay first clause was not a fox in the henhouse or a wolf in the flock. He said that “[i]n a contract of marine insurance providing, in effect, P&I-type cover, the presence of a “pay first” provision cannot fairly be described as a bolt from the blue”.

It has not been suggested that the red hand or onerous clause doctrine is inapplicable to commercial contracts entered into by commercial parties. Indeed, some of the six cases were decided in commercial situations. Essential elements of the doctrine include (i) that the party burdened by it was not actually aware of the clause in question, and (ii) that the party relying upon it had not done all that was fairly and reasonably sufficient to bring the clause to the attention of the other party (see Chitty on Contracts 35^th edition 2023 at [16-010 to 16-012]). The red hand or onerous clause doctrine is all about notice and it is not likely, in my judgment, to have any application to purely commercial transactions in financial markets such as insurance, where the party relying on the doctrine is represented by professional agents, whose duties will presumably include explaining the meaning and effect of the contracts it concludes for its principal, the insured.

I turn now to deal with what the six cases relied upon by the Owner and the Club actually decided.

In Spurling¸ the Court of Appeal (Denning, Morris and Parker LJJ) dismissed an appeal by a bailor of barrels of orange juice from Judge Block, who had held that adequate notice of an exclusion clause contained in printed conditions had been given to that bailor. The bailee had successfully relied on the exclusion as a defence to a claim for damage to the barrels. Denning LJ said this obiter at page 466:

In Thornton, the Court of Appeal (Lord Denning MR, Megaw LJ and Sir Gordon Wilmer) held that an exemption clause was not incorporated into a car park’s contract, when it was referred to on the printed ticket as being “displayed on the premises” and was written up on a post opposite the ticket machine itself. Lord Denning held at page 170 that (i) the defendant had not proved that the claimant knew of the clause, and (ii) it had been properly admitted by the car park’s counsel that it had not done what was reasonably sufficient to bring it to his attention. Lord Denning continued by saying that:

Again, this was an obiterdictum, since the point about the non-incorporation of the exemption clause had been admitted.

In Interfoto, the Court of Appeal (Dillon and Bingham LJJ) applied a version of the red hand or onerous clause doctrine. They held that an onerous clause requiring a huge and disproportionate payment to be made for delay in returning transparency photographs to a picture library had not been sufficiently drawn to the borrower’s attention, when contained in small print on a delivery note included with the bag of 47 photographs delivered. Bingham LJ’s judgment repays reading in its entirety, as it contains an insightful summary of the decision in Parker. Unfortunately, however, Dillon and Bingham LJJ did not agree on the jurisprudential basis for the principle they were applying.

In short, Dillon LJ held at page 439A-B that: “if one condition in a set of printed conditions was particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party”. Dillon LJ held that the onerous condition never, as a result, became part of the contract between the parties.

Conversely, Bingham LJ held at page 445 that the borrower was to be relieved of liability under the onerous condition because the lender had not done “what was necessary to draw this unreasonable and extortionate clause fairly to [borrower’s] attention”. Bingham LJ explained that:

Bingham LJ also remarked, significantly for our case, at page 445E that “[t]o the extent that the conditions so displayed were common form or usual terms regularly encountered in this business, I do not think the defendants could successfully contend that they were not incorporated into the contract”.

In Goodlife, the Court of Appeal (Gross, Moylan and Coulson LJJ) held that an exclusion clause in a commercial contract for the installation of a factory fire prevention system was not onerous or unusual and had been fairly and reasonably brought to the purchaser’s attention. Accordingly, the exclusion clause was incorporated into the contract and the purchaser was not to be relieved of its effect under the Unfair Contract Terms Act 1977. Coulson LJ stated the “well-established principle of common-law” at [29] as follows: “… even if A knows that there are standard conditions provided as part of B’s tender, a condition which is “particularly onerous or unusual” will not be incorporated into the contract, unless it has been fairly and reasonably brought to A’s attention”. Coulson LJ then helpfully reviewed the law, some of which I have already covered, at [30]-[38]. He emphasised at [35] that not every exclusion or limitation clause is onerous or unusual. At [34], Coulson LJ approved Judge Waksman’s dictum in Allen Fabrications Ltd v. ASD Ltd [2012] EWHC 2213 (TCC) (Allen) to the effect that: “Much will depend on the context. It might be said that if in very common use it is less likely properly to be regarded as onerous especially between two commercial parties since that is the business in which they knowingly operate”. Gross LJ, in a powerful concurring judgment, emphasised that, between parties of equal bargaining power, party autonomy was an important pillar of English common and commercial law. Parties are free to contract on terms they choose, to allocate risks as they see fit, and the court will enforce their bargains. Gross LJ concluded by saying that “[o]verall, this was a commercial contract between parties of broadly equal bargaining power. … fully cognisant of the requirement of reasonableness, I think the court should be slow to intervene in such a case, all the more so on an appeal”.

In Bates, Fraser J summarised some of the six cases at [978] concluding that: “the more onerous and unusual a clause, the greater notice must be given to the other party”. He noted at [979] that the “principle [is] available to contracting parties who are not consumers, but context and the respective bargaining positions of the parties are relevant. … I also consider that it is a high hurdle that must be passed for a term to be held to be onerous and unusual”.

In Blu-Sky, Judge Stephen Davies applied the principles I have described from Goodlife, Interfoto and Bates which he summarised (along with other cases) at [93]-[99]. He dealt in some detail with the question of the hierarchy of printed conditions at [98]ff, before deciding at [108]-[111] that clause 4.6 of a mobile phone provider’s standard terms (which provided for a cancellation charge totalling £180,000 in the circumstances of that case) was onerous and had not been fairly and reasonably brought to the attention of the social care provider, which was the other contracting party.

The details of Blu-Sky may not matter, but I should say that I cannot agree with the general statement that Judge Davies made at [102] to the effect that “the fact that such clauses are not unusual does not of itself mean that they are not onerous”. This is not entirely consistent with at least three prior judicial statements: Bingham LJ at page 445E in Interfoto at page 445E, Coulson LJ at [34] in Goodlife, who himself approved Judge Waksman in Allen (see [77]-[78] above).

I accept, of course, that the usual nature of a clause does not automatically mean that it is not onerous (which is perhaps all that Judge Davies was saying), but it does mean that such a clause is less likely properly to be regarded as onerous especially between two commercial parties.

The six authorities do indeed establish the existence of a red hand or onerous clause doctrine. I think the name “red hand doctrine” adopted by the parties is unfortunate and should not be perpetuated. It derives from Spurling and Thornton, which were two cases in which Lord Denning adumbrated a principle that never really found its way into the common law – at least in the way he expressed it. The principle is better described as the onerous clause doctrine.

The onerous clause doctrine can be applied to both consumer and commercial contracts, though it is to be noted that Interfoto and Blu-Sky are actually the only recent examples we were shown of it having been applied by the court in commercial situations. The other authorities emphasise the high threshold needed to establish that a clause is onerous or unusual, and the fact that the doctrine is unlikely to have any application in commercial contracts where the parties are of broadly equal bargaining power, and where the challenged clauses in question are common form or usual terms regularly encountered in the business.

It is, perhaps, worth restating what the onerous clause doctrine actually amounts to, since Dillon and Bingham LJJ disagreed as to its precise terms. In my judgment, the cases establish, despite Bingham LJ’s persuasive conclusion that the effect of the doctrine is to relieve the party from liability under the onerous condition, that where the doctrine applies, the onerous clause in question is not to be regarded as incorporated into the contract, or, perhaps more accurately, as having effect.

The onerous clause doctrine provides, therefore, 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 (whether individually or as part of the standard terms) was fairly and reasonably brought to the other contracting party’s attention.

It is right to point out that some of the authorities have suggested that a sliding scale applies so that the more onerous a clause, the more notice is required to be given to make it effective (see, for example, Gross LJ at [101] in Goodlife). For my part, I would not formalise that as part of the onerous clause doctrine. It is sufficient to say that both the question of how onerous or unusual the clause needs to be and the question of what amounts to fair and reasonable notice are questions of fact and degree that the court needs to decide taking into account all the circumstances of the case in question. It is always unwise to lay down strict conditions for the application of simple principles, since one cannot predict the facts and circumstances of future cases.

I would emphasise once again the high threshold that is required to show that a clause is onerous or unusual in the first place, particularly in a commercial context.

So far as this case is concerned, I am entirely satisfied that the judge was right to conclude that the pay first clause was not onerous or unusual.

First, the pay first clause is not unusual as the legal background summarised at [31]-[41] above demonstrates. Pay first clauses are commonly deployed by both P&I Clubs and in marine insurance generally. Precisely how commonly pay first clauses are deployed does not matter. The new evidence that the Insurer sought to adduce (and which I would, as I said at [28]-[30] above, not admit) would have taken the matter no further. The pay first clause in this case does not meet the high threshold needed to be classified as unusual to engage the onerous clause doctrine.

Secondly, whilst the pay first clause does, of course, have a serious and significant effect in the event of the insolvency of the Insured, it does not, in my judgment reach the high threshold that is required to make it an onerous clause to engage the onerous clause doctrine. I would summarise my reasons as follows:

I would dismiss the red hand ground of appeal.