No Market for `Lemons': On the Reasons for a Judicial Unfairness Test for B2B Contracts

Abstract

Judicial intervention into B2B contracts should be construed as part of state infrastructure to improve business efficiency and thereby that of the market itself. The main purpose of unfair contract terms regulation should be to discharge a business from reading, analysing, or even negotiating the bulk of contract terms presented to them by other businesses. This enables businesses to prepare standard terms in advance, particularly those underlying high-volume transactions. Their customers can rest assured that such contracts would need to pass a judicial fairness test before being enforced and can therefore accept the bulk of all terms presented to them in blissful ignorance of the terms' content. However, those terms which an efficient market economy would expect businesses to read carefully and, if necessary, negotiate need not be subjected to this judicial unfairness test. Such terms exempted from the fairness test are, if transparent, those that determine the price and the main subject matter of the contract, those that any aggrieved business had actually itself supplied, and moreover, all terms in a contract of such a high value for which reasonable parties would seek legal advice and painstakingly negotiate every word. There is also no need for a judicial fairness test for those terms that have, in fact, been negotiated in detail by the parties, since the main function of the test is to compensate for the lack of negotiations. In order to free the parties in the most efficient way possible from negotiating, or even reading, all other terms, the following judicially applied unfairness test should apply. The further removed a particular non-negotiated term is from what reasonable and honest parties would have agreed in individual negotiations, the more likely it is that the individual term is unfair.