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Report No. 199

The Standard form contracts: original purpose disclosed:

In Cheshire's Law of Contract, 14th Edn. "Use of standard form contracts' is dealt with at page 21 in the following terms:

"The process of mass production and distribution, which has largely supplemented if it has not supplanted individual effort, has introduced the mass contract -- uniform documents which must be accepted by all who deal with large-scale organizations. Such documents are not in themselves novelties: the classical lawyer of the mid- Victorian years found himself struggling to adjust his simple conceptions of contract to the demands of such powerful bodies as the railway companies. But in the present century, many corporations, both public and private, have found it useful to adopt, as the basis of their transactions, a series of standard forms with which their customers can do little but comply."

Lord Diplock has pointed out in Schroeder Music Publishing Co V. Macaulay (1974) 1 WLR 1308) that standard form of contracts are of two kinds. The first which are 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 ship-owners, insurers or bankers. He then proceeded to state that 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. Lord Diplock observed:

"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 kind of business in relatively few hands. The ticket cases in the 19th 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 organization 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 him to say: 'If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it". (see also Cheshire, Fifoot, & Furmston's, Law of Contract, 14th Edn. 2001 pp.21-22)

Unfair (Procedural and Substantive) Terms in Contract Back

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