1

Let's say you sell a service/activity to a customer for €150.

Can you state something like this in your contact?

  • An initial €150 payment must be payed upfront.
  • An additional charge of €850 may apply afterwards at our own discretion. This may be for, but is not limited to, damages or other loses due to your usage of our service.

This is similar to my previous question: Can you refuse to pay back deposit at your own discretion? but differs in the fact that this would be an additional payment after the service is complete that is not required to be payed up front.

Answers for any jurisdiction would be useful, but preferably Ireland and the European Union

4

Not as such. As the contract author, you must clearly and specifically identify risks that you want to other party to accept. Your whims i.e. "our own discretion" are not a clearly identified risk.

The trivial solution is to state that there are two payments, €150 up front and €850 afterwards. Then, you claim the right to waive (at your sole discretion) part or whole of the second payment.

It should be noted that the tax implications of such a contract could be non-obvious. You probably have to claim the whole €1000 as income when the contract is signed, and any waived payment as a discretionary expense. You're unlikely to get a VAT refund on that €850, I suspect. So given that you'd have paid €187 to the Irish government, refunding €850 would be hard.

4
  • Yes, a "second payment waivable at our sole discretion" clause is the obvious way to do this.
    – Kevin
    Aug 3 at 18:30
  • Interesting, I was thinking something like that could be possible. Can't the price change be considered a discount and then you get the VAT back? Aug 4 at 6:46
  • @DavidCallanan: The problem again is the whimsical nature of the refund. An agreed-upon discount can work. That can certainly be conditional on factors either inside the control of your counterparty or fully random events outside anyones control.
    – MSalters
    Aug 4 at 20:47
  • "solution is to state that there are two payments [...]. Then, you claim the right to waive". How is that different from large discount which the parties agree the company is allowed to revoke? When you attack someone's points and call them "plain illegal", you're not supposed to post an answer that is premised on those points. It's a matter of ethics. If anything, drafting "my right to waive my entitlement" is pointless and can be obviated. Aug 5 at 8:20
1

No

Such a term would likely be void for uncertainty if the reasons for making the charge were not spelled out in sufficient detail such that the other party would clearly know the circumstances where the charge might be levied. “Because we want to” is not such a reason.

It’s perfectly legitimate to give one party discretionary powers but the scope of these must be defined. Giving discretion means that the party is released from considering the adverse effects that the exercise of the discretion might have on the other party although, in general, the discretion still has to be executed reasonably.

With respect to a damages clause, common law (e.g. Ireland) requires that these must be a genuine pre-estimate of the loss and not be so high as to constitute a penalty. Contracts cannot have punitive clauses.

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  • 1
    Can you cite any source on when a contract can be "void for uncertainty"? Aug 2 at 23:56
  • @DavidSiegel hsfnotes.com/litigation/2017/04/06/…
    – Dale M
    Aug 3 at 0:20
  • 1
    @DavidSiegel That source is unavailing because it has nothing to do with the scenario the OP formulated. In Teekay Tankers the uncertainty at issue stems from an "agreement to agree" on pending matters. By contrast, in the OP's scenario there is no pending matter on which the parties need to agree afterwards: In the contract they are already agreeing on who (the company) will do what (charge €850) and the decision standard (at company's discretion). No need for customer's subsequent consent. That preempts the possibility of deadlock the court pointed out in Teekay Tankers. Aug 3 at 10:35
-1

Can you state this in your contact?

Yes. Exercising the entitlement to additional payment after the service has been provided does not change the facts that the customer (1) was duly informed at the formation of the contract, and (2) willfully and knowingly accepted that clause. In terms akin to the Restatement (Second) of Contracts at § 154(a)-(b), the language "at our own discretion" supports the argument that the customer agreed to bear the risk of being charged the additional €850. The clearer and the more visible the clause, the likelier it would prevail over consumer protection laws.

However, other language in the contract might suggest that the supplier's discretion regarding the €850 cannot be completely arbitrary. That language could have the effect of constraining the extent of "but not limited to". For instance, the language "damages or other loses due to your usage of our service" might afford the customer a position similar to ejusdem generis, and thus prevent the supplier from applying the additional charge unless the surcharge can be reasonably premised on some adverse event. This is why the supplier might have to be more explicit if his intent is to establish a broader entitlement to arbitrariness.

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    What about the uncertainty issue mentioned by Dale M? Aug 2 at 23:05
  • @DavidSiegel (1) The Restatement speaks for itself on the consequences of a party bearing a risk. Risk implies uncertainty. (2) Uncertainty and arbitrariness are permissible in --and inherent to-- various lawful contexts. One example of that is at-will employment. (3) The OP's description nowhere reflects that the surcharge of €850 is "punitive" in nature: The company might incur losses that justify billing a much greater amount than the initial one. (4) The initial amount of €150 might be the effect of a large discount which the parties agree the company is allowed to revoke. Aug 2 at 23:31
  • @DavidSiegel At least for now I'm removing the US tag you brought in. Contract law being largely similar among jurisdictions of the US and Western Europe, it is not clear that the particulars of Irish law would warrant a different conclusion. If I get to see why exactly that might be the case, I will restore the tag. Aug 3 at 10:54
  • I asked for a source. You cited the Restatement as sole source, which is a very specifically US source. Can you find any source which says this rule applies in other common law countries? Also, you don't mention unconscionablity which i think might apply to the case in the Q. Aug 3 at 13:48
  • This indeed appears to be quite US-specific. Ireland and the other EU countries generally apply a contra preferentem rule to contracts. The €850 cannot be considered a risk that is accepted by the consumer, because the reason for that risk to materialize is left unspecified in the contract. Under contra preferentem, omissions are the problem of the contract author.
    – MSalters
    Aug 3 at 14:49

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