STANDARD FORM CONTRACTS
The classical contract model developed at a time when most negotiations were conducted face-to-face by two parties. Doctrines associated with this model and its neo-classical offshoot continue to dominate the modern development of the law of contract despite the fact that a considerable number of legal agreements are now standard form contracts containing written express terms prepared in advance of negotiations and exchange by parties other than those contracting. Standard form contracts probably account for the bulk of contracts now made in inter-business agreements and consumer contracts. Most parking tickets, theatre tickets, package receipts, debit card purchase slips are standard form contracts. Although the Unfair Contract Terms Act 1977 recognises the existence of ‘written standard forms of business’, there is no statutory definition of a standard form contract in this country. However, all standard form contracts share certain characteristics. They have terms which are fixed in advance by, or on behalf of, the person supplying or buying the commodity or service. The intention is that the same contract be used in multiple transactions, with people who have not always been identified at the time of drafting the terms.
Standard form contracts are of two main types, and each category raises different issues to students of contract law. In Schroeder Music Publishing Co Ltd v Macaulay (1974), Lord Diplock set about describing the first category:
Standard forms of contracts are of two kinds. The first, of very ancient origin, are those which set out the terms on which mercantile transactions of common occurrence are to be carried out. Examples are bills of lading, charter-parties, policies of insurance, contracts of sale in the commodity markets. The standard clauses in these contracts have been settled over the years by negotiation by representatives of the commercial interests involved and have been widely adopted because experience has shown that they facilitate the conduct of trade. Contracts of these kinds affect not only the actual parties to them but also others who may have a commercial interest in the transactions to which they relate, as buyers or sellers, charterers or shipowners, insurers or bankers. If fairness or reasonableness were relevant to their enforceability, the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable. (p. 624)
The same presumption, however, does not apply to the other kind of standard form of contract. This is of comparatively modern origin. It is the result of the concentration of particular kinds of business in relatively few hands. The ticket cases in the nineteenth century provide what are probably the first examples. The terms of this kind of standard form of contract have not been the subject of negotiation between the parties to it, or approved by any organisation representing the interests of the weaker party. They have been dictated by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables them to say: ‘If you want these goods or services at all, these are the only terms on which they are available. Take it or leave it’. Standard form contracts of this kind are often referred to as ‘contracts of adhesion’. This account of standard form contracts enables us to consider some important points about their uses and the extent to which they can be considered abusive.
USES, ABUSES AND BARGAINING POWER
The basic reason underlying the widespread use of standard forms of contract is the need to facilitate the conduct of trade in the most efficient way. Standard form contracts often run to a great many pages of detailed clauses and individual clauses to more than a page. There are undoubtedly thousands of such contracts in use at any time. Often standards form contracts are of use because the parties regularly enter into complex technical and legal relations. This is the case, for instance, in the construction industry, international trade and engineering. In other cases it is because the dealings in question involve transactions relating to standardised and mass-produced products, services or marketing techniques. The latter is a particularly common feature of modern business. In such cases the presence of a standard form contract such mean that standard conditions do not have to be re-negotiated for every transaction.
Many of the reasons for the development of standard written contracts are positive. In the inter-business field, they may be well established as exemplars negotiated by trade associations or professional bodies on behalf of parties of approximately equal bargaining power over a lengthy period of time. The cif international contract of sale and the JCT form of building contract, discussed below, are good examples of this. With these types of contracts there is a presumption by the courts that they are fair and reasonable. However, this does not mean that standard form contracts are without their problems. The ‘battle of the forms’ is an example of the problems which arise when use is made of standard form contracts by both parties to the deal. While standard form contracts can represent the intentions of the parties, it is clear that people often proceed without reading the details embodied in a standard form.
However, it is not uncommon for a powerful business organisation to impose its ‘written standard terms of business’ upon others who possess considerably less bargaining strength. Such inequality of bargaining strength is normally found to exist between businesses and consumers. It comes about as a result of a concentration of market power, be it monopolistic or oligopolistic, or because the interests of smaller firms are regulated by a trade association. Where the use of standard form contracts is accompanied by inequality of bargaining power, there is a greater likelihood of their being used as instruments of economic oppression because their terms can more easily be weighted in favour of the interests of the stronger parties who prepare them. Here there is no presumption by the courts that such contracts are fair and reasonable and, as a result, they are more likely to be subjected to judicial regulation. In such circumstances, the courts may well take into account the absence of genuine agreement and justify their intervention on that basis.
A number of problems with the use of standard forms when dealing with a consumer relate to the way information about the crucial rights and duties of the parties is communicated. All too often, this is contained in the ‘small print’ of standard form documents. Amaze of small print usually means that onerous clauses are either not read or not understood. It is well known that the consumer may have no time to read standard form clauses which are often contained in another document elsewhere. Contracts with railway or bus companies are an excellent example of this. Tickets commonly refer to the fact that standard terms and conditions apply but these are often only available on posters near the booking office. However, practice is changing with greater use being made of the internet for buying and selling services. Many sites do not allow ‘click and wrap’ contracts to be concluded until the purchaser confirms they have read the standard forms which can be called up at the click of a mouse.
It also remains the case that, even if consumers did have time to read standard contracts, they would probably not understand them. And even if they did understand them, they would probably, as Lord Diplock suggested, have little choice but to ‘take them or leave them’. When was the last time that you renegotiated the terms of a standard form contract with a major airline carrier or web-based bookseller? One approach to this problem would be to reject the assumptions about roughly equal bargaining strength made by classical or neo-classical theorists by encouraging judicial and statutory rewriting of contracts. Another would be to try and create the negotiating autonomy anticipated by traditionalists and to work towards increased consumer awareness of contracts.
Examples of both these approaches are evident in modern statutes and case law. Legislation passed in recent years has removed some of the more obvious causes of concern, such as high and hidden interest rates in credit transactions, by outlawing them. Changes have also been imposed relating to the form, layout and language of consumer documents in order to make them more accessible and comprehensible. The Unfair Contract Terms Act 1977 and European legislation have also played an important part in the legal struggle against unfair exclusion and liability in standard form contracts. These developments will be considered more fully in the chapter which follows.
In an introductory book such as this, it is neither possible nor appropriate to attempt even a general survey of the law and practice of standard form contracts. However, it is important that students become familiar with some of the contexts within which they operate. In the remainder of this chapter, examples of building and engineering contracts are examined more closely. The prevalence of standard form contracts is such that the courts are regularly asked to interpret them. A dispute between the parties to a standard form contract may, for instance, require the court to establish the true meaning of an individual clause, the relationship between two printed clauses, or the standing of a printed clause and written addition. It may involve a question of whether or not a term may be implied into the contract, or the breadth of an exclusion or limitation of liability clause.
In broad terms, building and engineering standard forms display many similarities. Both reflect a high degree of planning of complicated technical operations. This planning attempts to establish the detailed nature and scope of the rights and duties of the principal parties and third parties involved in commercial networks of agreement. These can involve the commissioning body, the architect, consulting engineers and subcontractors. As we saw in Williams v Roffey Bros and Nichols (Contractors) Ltd