The Court of Appeal's recent decision in MS Amlin Marine NV v King Trader Ltd [2025] EWCA Civ 1387 marks a clear restatement of the so‑called "onerous clause" or "red hand" rule. Unusual or onerous terms cannot be incorporated into an unsigned contract unless they were fairly and reasonably brought to the other party's attention, and the other party knew of them.

The message from the court is clear: in commercial contracts between sophisticated parties with professional advisers, the bar for finding a term "onerous" and therefore requiring special signposting is high, and common industry clauses are unlikely to trigger the doctrine at all.

The facts and the judgment

The dispute in MS Amlin arose under a marine insurance policy that incorporated a booklet of terms. Part 1 contained the insurer's indemnity against third‑party liabilities; Part 5 contained a "pay first" clause. That clause required the insured to pay the third party first before the insurer's indemnity was engaged. However, the insured faced liabilities exceeding US$47 million and was insolvent. Because it could not "pay first," the insurer owed nothing, and the third party recovered nothing. 

At first instance, the Commercial Court held that the "pay first" clause was neither unusual nor onerous. The Court of Appeal agreed. 

• On "unusualness," the court accepted that "pay first" clauses are prevalent in marine liability policies. A term embedded in industry practice is, by definition, not unusual.
• On "onerousness," the court emphasised that the threshold is high, particularly in commercial contracts between parties of equal bargaining power. Crucially, the court went further and indicated that, where the contracting party is advised by a professional broker or adviser, whose job includes reading and explaining the terms, the onerous clause doctrine will, in practice, not apply. 

Practical implications and takeaways

In short, this judgment confirms that the "onerous clause" doctrine is alive, but it is less likely to apply in commercial contracts than in consumer ones, especially where the clause is standard in the market and the parties have professional advisers.

Key takeaways:

• Common clauses are unlikely to be unusual or onerous: If a term is widely used in the market, like a "pay first" clause in marine insurance, the court is unlikely to see it as unusual or onerous. Industry practice is highly relevant.
• Professional advice counts as notice: Where a party has a broker or lawyer, the court will not label a clause as onerous merely because it is strict or oppressive. The adviser's role in reviewing and explaining the terms can meet the notice requirement without the need for "red ink warnings" or special signposting.
• Think about who is on the other side: If you are contracting with a less experienced or unrepresented party, encourage them to take professional advice, make harsh terms clear and accessible and, where possible, seek an explicit acknowledgement or signature confirming that they have seen and understood the onerous term.
• Be aware of the risk to which you agree: Courts are unlikely to rescue businesses from market standard clauses they have agreed to, particularly after extensive, professionally advised negotiations where the risks were clear and understood. The business should plan for those risks and reflect their potential impact in its pricing and contingencies.