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BUSINESS organisations and corporations, just like individuals, are always entering into contracts. Unlike individuals, such corporations are created for the very purpose of engaging in business transactions. 

And yet, like the proverbial “castle under siege” where those outside want to get in and those inside want to get out, many a person that has entered into a contract wants to get out of the obligations when besieged by claims. 

There are many grounds upon which a contract may be assailed but when these are not available an attempt is made on the basis of the unreasonableness of the obligation which is then sought to be avoided. But can unreasonableness ever provide the escape route?  

Even if one were to agree that reasonableness can be a basis, what exactly is reasonable and what does it include? What is reasonable to one person may be unreasonable to another. Hence the very basis of raising such an objection opens floodgates to uncertainty.  

This is not to say that the word “reasonable” is without meaning. It is frequently used in conversation and documentation. At times parties may use it with a specific purpose in mind. On other occasions it is used to postpone a dispute. So it serves purposes not visible to the uninitiated in commercial negotiations. 

The writer is reminded of an instance some years ago involving negotiations of a Joint Venture Agreement between two parties. All else was agreed but despite continuing negotiations throughout the week, the parties could not agree on the percentage of profits to be declared as dividends in each financial year.  

As both parties did not wish the venture to fail, the word “reasonable” provided the magical solution. 

It was agreed that in each year the parties would declare a reasonable proportion of profits to be declared as dividends. And so the Joint Venture Agreement was signed.  

In reality using the word “reasonable” merely postponed having to decide the percentage of profits to be declared as dividends. It was in a manner of speaking a case of “passing the buck” albeit with honest intentions on the part of all parties. 

Otherwise parties to an agreement sometimes undertake obligations which are realised to be an unbearable and therefore unreasonable burden when it is time to perform them. The party finding the burden to be unreasonable seeks to avoid its obligation to lighten if not unload what it has undertaken by pleading that the terms are unreasonable. 

Many cases narrate this dilemma but Steel Company of Canada Ltd vs Willand Management Ltd is one of them where the work involved application of adhesive to the sloping roofs of two buildings. Though the contractors in their wisdom had expressed their preference for the use of “hot stiff asphalt” rather than “Curadex” for the sloping roofs, the owners chose the latter and the contractors were prepared to give a guarantee that it will remain “weather-tight for five years”. 

The events that occurred were of a kind reasonably foreseeable and damaged the roofs by severing the insulating boards from the steel sheeting of the roofs. The court found that all work was properly done except that there was a failure of the adhesive Curadex to hold the roofing to the steel deck.  

The issue therefore becomes whether the responsibility for using Curadex rested on the owners who wanted it or on the contractors who applied it. In the path of the contractors stood a major obstacle – the guarantee “that all work will remain weather tight.” 

A view strongly accepted in the court was that it would not have been reasonable for the owner to have expected and the contractor to have given an absolute guarantee against the elements when neither had any experience with the capacity for “Curadex” to perform on the sloping steel deck. 

The judge quoted with approval what was said by Cockburn CJ in Stadhard vs Lee: “It frequently happens, in the competition which notoriously exists in the various departments of business, that persons anxious to obtain contracts submit to terms which, when they come to be enforced, appear harsh and oppressive. From the stringency of such terms escape is often sought by endeavouring to read the agreement otherwise than according to its plain meaning. But the duty of a court in such cases is to ascertain and to give effect to the intention of the parties as evidenced by the agreement, and though, where the language of the contract admits of it, it should be presumed that the parties meant only what was reasonable, yet, if the terms are clear and unambiguous the court is bound to give effect to them without stopping to consider how far they may be reasonable or not.” 

It would therefore be an obviously fundamental principle that parties should consider the reasonableness of their obligations as well as the reward that they will get at the time that they put pen to paper. As the ink dries so do their obligations crystallise.  

In effect, therefore courts will give effect to what the parties genuinely agreed to. As long as the agreement was agreed with full knowledge, free consent and with a willing heart, why should the court step in?  

The court could set aside the transaction if the consent of one of the parties to the agreement was caused by fraud, misrepresentation, mistake or duress and the like.

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