What makes a contract not enforceable (UK): duress, the red hand rule and unfair terms

What is duress, and which clauses are recognised as unfair contract terms and therefore not legally valid? Even where a contract has all five elements of a legally binding contract, there are circumstances in which a court will refuse to enforce it, or will strike out particular terms. This page closes my series on what makes a contract legally binding by looking at the other side of the question: what makes a contract not enforceable.

Duress in contract law

Duress is when one party places such pressure on another party that the other party feels they have no option but to agree to the contract. The agreement is there on paper, but it was not freely given.

The Godfather example makes the point. When someone makes you an offer that you cannot refuse, the resulting contract is likely to be recognised as legally invalid, and therefore not enforceable, because you had no genuine choice but to agree. The law will not hold you to a deal you were forced into.

For business owners the lesson is to be careful about how agreements are reached, particularly when one side is in a much stronger position. An agreement extracted under improper pressure may be worth very little when you come to rely on it.

The red hand rule (onerous terms)

The red hand rule deals with onerous terms. It says that if a contract contains terms, especially in consumer contracts, that are so burdensome, so unfair and so one-sided, those terms need to be highlighted. The image the courts use is that the term should be written in red ink with a huge red hand pointing to it.

The reason for the rule is practical. The majority of people simply sign a contract without actually reading and understanding it. If there is a huge red hand pointing to a specific clause, that person is more likely to read that clause before agreeing. The rule combats the problem of unusual and heavy obligations being buried in small print.

If you draft contracts for your business and include a term that is unusually harsh, do not hide it. Bring it to the other party's attention clearly, or you risk a court finding that it was never properly incorporated.

Unfair contract terms

On the subject of unfair terms, the Unfair Contract Terms Act is the other main control. Under the Act, a clause will be recognised as legally invalid, and therefore unenforceable, if it causes such a significant imbalance in the rights and obligations of the parties that it is to the detriment of the consumer.

Put in simple words, if a clause is significantly unfair or unbalanced, that clause is not legally valid. The rest of the contract may survive, but the offending term will not be enforced.

This matters in two directions. If you are a business dealing with consumers, your standard terms need to be balanced or you may find key protections are unenforceable when you need them. If you are on the receiving end of a contract and a clause seems grossly one-sided, it is worth asking whether it would stand up at all.

When does a contract need to be in writing?

Contracts generally do not need to be in writing to be legally binding. As I explain elsewhere in the series, acceptance can be by conduct and verbal contracts are formed all the time. There are exceptions, though, and the most important one for most people concerns land.

When it comes to selling property or selling land, the contract needs to be in writing to be legally binding. A verbal agreement to sell a house or a plot of land is not enforceable as a contract for the sale of that land.

Certain documents go further and need to be witnessed. The TR1 form, which is the transfer document submitted to the Land Registry when land changes hands, is one example: the signatures on it need to be witnessed for the transfer to be valid.

The full picture

To recap the series, a legally binding contract needs an offer, acceptance, consideration, intention to create legal relations and certainty of terms. Even with all five present, duress, onerous terms that were not highlighted, unfair terms against consumers, and the writing and witnessing requirements for land can still stop a contract, or a clause in it, from being enforced.

Next steps

If you are relying on a contract, check that it was freely agreed, that any unusually harsh terms were clearly brought to the other side's attention, and that consumer-facing terms are balanced. If the contract involves land or property, make sure it is in writing and that any transfer documents are properly witnessed. Where you are unsure whether a contract or a clause will hold up, speak to a commercial solicitor before you act on it.