We only sign contracts to avoid mobile phone shop awkwardness
Did you read the small print when you signed for your latest mobile phone contract?
No, me neither; and we shouldn’t have to. Parliament: step up and protect our interests.
When you sign up for a mobile contract (or any given contractual good), you’ll come to notice that you have very little room to negotiate the terms. You stand there in the shop, pretty much feeling like the contract is on their terms and comes on a ‘take-it-or-leave-it’ basis.
This is because business-consumer transactions are predominantly facilitated by the use of standard form contracts, otherwise known as ‘boilerplate’ contracts. Standard form contracts have been used for over two centuries, with their first use being for marine insurance. It was the insurance industry’s reliance on standard form contracts in the late 18th century which marked a radical departure from the traditional negotiated contract.
It makes commercial sense for businesses to use these types of contracts, because they are drafted once and can be reproduced on a mass scale. This saves the business a lot of time and money that would be otherwise spent on negotiating every individual contract. Standard form contracts in business-consumer transactions have altered the agreement arena, shifting in favour of businesses.
Prausnitz persuasively argued:
No longer do individuals bargain for this or that provision in the contract… The control of the wording of those contracts has passed into the hands of the concern, and the drafting into the hands of its legal advisor… In the trades affected it is henceforth futile for an individual to attempt any modification, and incorrect for the economist and lawyer to classify or judge such arrangements as standing on an equal footing with individual agreements.
It’s unsurprising then that these contracts are designed to serve business interests, and the inequality of bargaining power comes to the detriment of the consumer.
Counsel spend a considerable amount of time drafting these contracts, and do so to ensure that their client is getting the better end of the deal. For businesses that don’t draft their own contracts, they typically free-ride on the regurgitated contractual terms of other businesses within their industry.
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There is a strong deference towards businesses in trusting that they will not include particularly oppressive terms. However, precedent has seen that this deference is naively placed. Courts have struggled to reconcile the importance of enforcing reasonable terms against the need to defend consumers from exploitation.
I’m not suggesting that businesses are left with an unfettered discretion to incorporate any terms they want; there is a wealth of legislation and case law regulating this area. However, existing law is outdated and doesn’t reflect the modern day complexity and density of standard form contracting.
The Unfair Contract Terms Act 1977 (UCTA) and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) work to give the judiciary considerable oversight into regulating unfair terms. UTCCR applies only to consumer contracts that are not individually negotiated; applying to the contracts which are discussed in this article.
These regulations have considerable scope as they contend that any contractual term is capable of amounting to being unfair, whereas UCTA provides an exhaustive list. However, the upshot of the regulations is that they don’t apply to terms which relate to the main body of the article.
Although the pieces of legislation discussed empower the judiciary with considerable oversight, there is still a gap in the law which leaves consumers aggrieved. UCTA and UTCCR are effective in rendering certain contractual terms invalid, but they do nothing for deterring businesses from using the terms, nor for encouraging good practice. They are only invalidated when challenged. Furthermore, they do nothing for aiding the consumer in coming to understand the terms of their contract.
The notable case L’Estrange v Graucob hallmarked the importance of the signature, which is still attached to contracts today. The signature incorporates all of the terms within that form, irrespective of whether they’re read by the consumer or not.
Even though the importance of a signature is widely understood beyond contract law scholars, contracts are still seldom read. There are various reasons as to why people don’t read their contracts, and nowadays we shouldn’t be expected to.
When in a store looking to purchase a mobile phone contract, consumers have an awareness about the one-sidedness of the terms, and that they are non-negotiable. This awareness is based on the fact that the store employee is not disposed to bargain over the boilerplate terms, or they lack the authority to do so.
I have been guilty myself of not reading the terms of my phone contract with the vigilance it deserves. You feel as though there is a need to sign the contract quickly in the hope of preventing an air of awkwardness. You might convince yourself that in reading the terms, you are being confrontational with the store employee and showing a sign of distrust. These social pressures are powerful drivers in assenting to a contract without fully informing yourself of the terms.
Imagine for a second that you did read the contract, would you be in a better position than you were in prior to reading it? There is a good chance you won’t. As I said earlier, judicial and legislative oversight of contract law does not reflect the complexity and density that attributes itself with modern-day contracts. That is because standard form contracts are systematically lengthy, with legal jargon in abundance.
This creates an asymmetry of sophistication between drafters and consumers. It’s doubtful that anyone beyond contract experts fully understand the meaning and implications of the terms. So you may well read the terms of your phone contract, or your terms of subscription with Netflix, but it’s doubtful you’ll fully understand the majority of them.
The time has come for parliament to step in and make a real change to the law surrounding standard form contracts. The law needs to place responsibility on businesses to adopt a good working practice; drafting and presenting terms in a manner consistent with the understanding of a lay person. Rather than concentrating on invalidating terms which are deemed unfair when in action, focus on using preventive measures to ensure they aren’t incorporated in the first place.
The prevalence of standard form contracting may warrant the implementation of an independent authority which is tasked with the oversight of standard form contracts. This new body could be made up of legal and business experts, who review standard form contracts and implement changes where necessary. It may also be possible to create model terms which businesses could adopt into their own contracts.
Perhaps parliament’s reluctance to regulate in the initial contractual steps resonates with their stance on the freedom to contract. Although a necessary principle, standard form contracting has revolutionised the agreement arena, providing justification for reneging on this fundamental element of contract law. Courts have struggled to reconcile conflicting interests and parliament doesn’t want to encroach on fundamental business rights.
However, this ongoing issue is coming to the detriment of the consumer; who can never truly understand their position in the agreement even if they try to.
Darren Barnett is a law graduate from the London School of Economics, and is currently a masters candidate in corporate governance at the University of Manchester.
Prausnitz, O. ‘The Standardisation of Commercial Contracts in English and Continental Law’ (1937) 52 Harvard Law Review 700