Commercial Contracts: The Relevance of the Parties’ Bargaining Power

Commercial Contracts: The Relevance of the Parties’ Bargaining Power

Does an imbalance of bargaining power between two commercial parties effect the potential enforceability of the contract? Yes, the Court of Appeal in the UK has said, with major implications for commercial organisations in The Bahamas. 

The expert commercial lawyers at top Bahamas law firm ParrisWhittaker has many years’ experience advising clients on their commercial contracts.

The Court of Appeal recently ruled on the issue of interpretation of a commercial contract in which the seller attempted to restrict liability to the value of the goods (laminated sheeting).  One of the sheets supplied was found to be defective after it had been fitted, and a compensation claim followed.

The Unfair Contract Terms Act 1977 prevents businesses from excluding or restricting liability for breach to the extent the relevant contract term is unreasonable. In this case, the court ruled the indemnity was unreasonable under the Act because it was so restrictive in a number of different ways.

Unequal bargaining power

Notably, the first reason the court found the terms to be unreasonable was the clear unequal bargaining power between the parties.  The seller, for instance, had a much higher turnover than the seller – so there was limited scope for negotiation for the customer.

It was also noted that the goods were standard and not made specifically to the customer’s specification.

What does this mean?

Businesses supplying goods or services to other businesses are advised to review their standard terms for reasonableness - particularly where they are selling to businesses with unequal bargaining power.

Even more importantly, businesses should also consider whether their standard terms and conditions are likely to be enforceable in any given contractual relationship: it’s clear from this ruling that what may be reasonable in one set of circumstances may not be in another.  It’s arguable whether standard T&Cs are even fit for purpose given this ruling.

How can we help?

Business that sell to other businesses on their standard terms are strongly advised to review those terms to ensure they are reasonable.  This is particularly important where the other party is a smaller business with unequal bargaining power.

If you have any concerns regarding a commercial contract, such as the enforceability or otherwise of standard terms, contact the expert commercial lawyers at ParrisWhittaker for urgent advice and representation.