Abuse of Rights in English Contract Law: Hidden in Plain Sight?
| Published date | 01 September 2021 |
| Author | Solène Rowan |
| Date | 01 September 2021 |
| DOI | http://doi.org/10.1111/1468-2230.12647 |
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Modern Law Review
DOI:10.1111/1468-2230.12647
Abuse of Rights in English Contract Law: Hidden in
Plain Sight?
Solène Rowan∗
The article argues that the fetters on the exercise of unilateral contractual discretionary powers
that were dened in Braganza vBP Shipping Ltd and the limits on damages clauses as redenedin
Cavendish Square Holding BV vTalal El Makdessi are imposed to prevent the abuseof contractual
rights or freedoms and this is suggestive that a broader principle against the abuse of rights
might be at work in English contract law. Whilst English law has traditionally been understood
as rejecting a free-standing and general doctrine of abuse of rights, the article explains why this
should not be regarded as an obstacle to the proposed analysis.In both the context of contractual
discretion and damages clauses,the central impor tance of abuse is evidentfrom the tests that are
applied, the factors that the authorities tell us are relevant to their application and both the high
bar for the court to intervene and the exibility of the relevant standards,which lter out only
the most egregious and inadmissible cases.
INTRODUCTION
That contracting parties are, absent incapacity or illegality, entitled to create
mutual rights and duties by agreement, is well established and uncontentious in
English law.1The general principle is that ‘parties are free to contract as they
may see t’.2Aside from in relation to contracts involving consumers, whose
perceived vulnerability is protectedthrough regulation,3the courts are reluctant
to disturb how the parties have chosen to balance their competing interests
and allocate risk. There is no general jurisdiction to invalidate or vary freely
negotiated contractual rights by resort to concepts of fairness, reasonableness
and good faith.
The same is true of the manner in which those rights are exercised. As Lord
Reid said in White and Carter (Councils) Ltd vMcGregor,4‘it never has been the
law that a person is only entitled to enforce his contractual rights in a reason-
able way and that a court will not support an attempt to enforce them in an
∗Associate Professor and Futures Scheme Award holder,the Australian National University.My thanks
are owed to GreggRowan, Peter Turner and the editorial committee and the anonymous referees of
the Modern Law Review for their comments on earlier drafts of this article.
1Photo Production Ltd vSecuricor Transport Ltd [1980] AC 827 (HL).
2Suisse Atlantique Société d’Armement SA vNV Rotterdamsche Kolen Centrale [1967] 1 AC 361 (HL),
399 per Lord Reid.
3 Consumer Rights Act 2015.
4 [1962] AC 413 (HL Sc).
© 2021 The Author.The Modern Law Review © 2021 The Modern Law Review Limited. (2021)84(5) MLR 1066–1092
Solène Rowan
unreasonable way’.5Nor do the courts usually scrutinise the motives of a party
exercising such a right. He can do so ‘for a good reason or a bad reason or no
reason at all’.6The precedence given to the contract terms, which are usually
enforced dispassionately and without judicial meddling, is a source of satisfac-
tion amongst English contract lawyers and is vaunted as promoting commercial
certainty.7
Yet there are also contexts in which the courts have imposed outer limits on
contractual rights and freedoms in order to prevent their misuse.Two such con-
texts, both of which have been subject to recent developments, are contractual
discretion and damages clauses. In Braganza vBP Shipping Ltd8(Braganza), the
Supreme Court dened the review jurisdiction of the court over the exercise
of unilateral contractual discretionary powers.This is implemented through an
implied ter m and rests on concepts of honesty,good f aith, propriety of purpose,
reasonableness,rationality,arbitrar iness, capriciousness and perversity.As regards
damages clauses, the Supreme Court in Cavendish Square Holding BV vTa l a l E l
Makdessi9(Makdessi) recently redened the test for ascertaining whether a clause
is penal, bringing an end to the binary search for a genuine pre-estimate of
loss in favour of a more nuanced and evaluative enquiry. There is now greater
exibility to assess the enforceability of damages clauses by reference to no-
tions of legitimate interest,unconscionability, exorbitance and extravagance. A
damages clause will be unenforceable where it does not serve a legitimate
interest in performance and is extravagant, exorbitant or unconscionable in
amount.
The thesis of this article is that these limits on contractual discretionary pow-
ers and damages clauses are imposed to prevent the abuse of contractual rights
or freedoms and this is suggestive that a broader principle preventing rights from
being abused might be at work in English contract law. In these specic areas,
the relevance of abuse is increasinglydiscer nible following recent developments.
The central importance of abuse is evident from the tests that are applied and
the factors that the authorities tell us are relevant to their application. It is also
apparent in the low standard that is set, which lters out only the most egre-
gious and inadmissible cases. The right holder needs only to have acted with
some proper basis or in a way that is justiable and the court will decline to
intervene.
‘Right’ is used here in a broad sense that encompasses contractual advan-
tages,10 such as entitlements, powers and freedoms agreed by the parties or
5ibid, 1183 per Lord Reid.
6Chapman vHonig [1963] 2 QB 502 (CA), 520 per Pearso n LJ.
7 See for example Golden Strait Corp vNippon Yusen Kubishika Kaisha (The Golden Victory) [2007]
2 AC 353 (HL) at [1] per Lord Bingham. On the contentment of English lawyers with their
contract law, see P.MacMahon, ‘The Englishness of English Contract Law’ (paper on le with
author,presentation at the LSE Law Department on 28 Februar y 2020).
8 [2015] UKSC 17 (SC).
9 With its conjoined appeal ParkingEye Ltd vBeavis [2016] AC 172 (SC).
10 On the notor ious diculty of dening ‘right’, see W.N.Hohfeld, ‘Fundamental Legal Concep-
tions as Applied in Judicial Reasoning’ (1916-17) 26 Yale LJ 710 for whom ‘[t]he word “right”
is used generically and indiscriminately to denote any sort of legal advantage, whether claim,
privilege, power or immunity’.
© 2021 The Author.The Modern Law Review © 2021 The Modern Law Review Limited.
(2021) 84(5) MLR 1066–1092 1067
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