- The Court’s approach to freedom of contract in business-to-business contracts vs Business-to- Consumer contracts
What is Freedom of Contract?
2 Key Aspects.
- Firstly, The law should respect the freedom of the contracting parties to set the terms of their own agreements.
- Contracts should be enforceable because the parties have freely agreed to them.
The approach taken by courts to business-to-business contracts:
- Follow these approaches for better B2B contracts:
- Courts adopt a non-interventionist approach to business-business contracts where both parties possess equal bargaining power.
- Also Courts have shown a reluctance to intervene in contracts between commercial parties of equal standing. As such, they should be able to draft contracts according to their own preferences.
- A commercial party has the freedom to impose its own terms on an agreement.
- The courts unwillingness to interfere in this context reflects the requirement for business certainty.
- The non-interventionist approach supports freedom of contract as commercial parties of equal size can enforce terms they have freely agreed.
The approach taken by courts to business-consumer contracts:
Important approaches followed by courts are;
- Courts adopt a more interventionist approach under the Consumer Rights Act (CRA) 2015 which governs business-to-consumer contracts.
- The reason for this is because businesses hold a stronger bargaining position than consumers.This imbalance offers consumers greater protection
- A term is unfair if it triggers a significant imbalance of rights in favour of the business. And also to the detriment of the consumer (S.62(4) CRA 2015).
- The good faith test determines whether a term is fair.
- There are two aspects to the good faith test:
- Procedural fairness: Business and consumer dealt in good faith when forming contract, e.g. by making sure the consumer understood the relevant terms when entering into the contract.
- Substantive fairness: The function of good faith is to protect the consumer from receiving goods that fall below a minimum level of quality that they would reasonably expect.
- The good faith test works with significant imbalance to raise the threshold required for a term. We will consider this fair and include it in the contract. This contradicts the idea of freedom of contract and shows that freedom of contract in a consumer context is illusory.
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