The Covid-19 pandemic has made e-commerce transactions the trendiest form of transactions because of their compatibility with the health precautions being taken to mitigate the pandemic. Standard form contracts are a profound feature of e-commerce given the fact these transactions are done without physical interaction. These types of contracts which were previously primarily used for cross-border transactions have surged extending to even local transactions because of the immobility of people during the pandemic. This begs the question of whether standard form contracts are legal.
What is the nature of standard form contracts?
Remember that a key principle of contract law is that contracts must be reached at after negotiation and a resultant agreement called consensus ad idem (meeting of minds). Standard form contracts are contracts between parties whose terms and conditions are set by one of the parties and the other parties have little or no ability to negotiate favourable terms and are thus placed in a take it or leave it position. As such the terms and conditions of standard form contracts are not arrived at by negotiation of the parties to the standard form contracts.
In the case of Uber BV v Aslam, Lord Leggatt observed that the agreements between Uber and Uber drivers were standard form contracts as they were drafted by Uber and the Uber drivers had no say in the terms and conditions of these agreements but had to agree to them because they needed to make money.
Are standard form contracts legal?
For a contract to be legal, there must be consensus ad idem or meeting of the minds between or among the parties to the contract. Consensus ad idem is a product of negotiation in that without a negotiation there cannot be consensus ad idem. Given that the terms and conditions of standard form contracts are not arrived at by negotiation there is no consensus ad idem between or amongst the parties to standard form contracts.
In the case of Longway Suitcase Manufacturing Company Limited v UAP Insurance (U) Limited, the High Court of Uganda observed that the insurance contract between the parties was invalid for lack of consensus ad idem. The manager of the plaintiff company who negotiated the contract on behalf of the plaintiff only spoke mandarin and yet the negotiations were ordinarily conducted in English. There was no translator to translate to him in mandarin. As a result, what the plaintiff’s manager thought was the insurance premium was not what the representatives of the insurance company thought was the insurance premium. The parties were in essence at cross purposes. The Court concluded that in the circumstances there was no consensus ad idem between the parties and thus the insurance contract was invalid.
Equally, for a contract to be valid, its terms must not be unfair or prejudicial to one of the parties for the doctrine of freedom of contract envisions an equal bargaining power between or amongst the parties to the contract. Standard form contracts by the nature do not enable equal bargaining power. As such there is more often than not a party with a higher bargaining power usually the seller than the other party, usually the buyer. This is because more often than not it is the seller that drafts standard form contracts.
In the case of Uber Technologies Inc v Heller, the Supreme Court of Canada invalidated an arbitration clause in a standard form contract between Uber and an Uber driver for being unconscionable. The Court observed that the arbitration process that was envisioned in the clause was to take place in the Netherlands and the fees for the process were so high. In the Court’s view, the respondent uber driver could not afford to take part in the arbitration process. The Court also bore in mind that the respondent did not have a say in the formulation of terms and conditions of the contract given his lack of bargaining power.
Ultimately, therefore, courts are bound to render standard form contracts illegal due to their nature. Standard form contracts can however be modified to bring them into conformity with contract law. This can be achieved by parties utilizing technology for example to engage in negotiations most especially with regards to cross-boundary transactions to attain consensus ad idem. Parties can equally incorporate terms and conditions that are favourable across the board to all the parties to the contracts to avoid unconscionable bargains