Page 1
Towards a European
Contract Law
edited by
Reiner Schulze
Jules Stuyck
Offprint
Page 2
Page 3
131
Unfair Terms in Contracts Between Businesses
Martijn W. Hesselink
I. Introduction
So far, the European Union has only harmonised unfair terms law in re-
lation to business to consumer (B2C) contracts. In principle, the limited
scope of the Unfair Terms Directive has no implication for what should
happen to unfair terms in business to business (B2B) contracts. Framing
the question in terms of whether the consumer protection contained in the
acquis should be extended to businesses is misleading, because it is not the
scope of protection that is limited by the Directive, it is the scope of the
harmonisation endeavour. Th e Directive simply does not aff ect business to
business contracts and, thus, is neutral on the issue of unfair terms control
in business relationships. Th e scope of the draft for a possible Optional
Instrument that was produced by a European Commission Expert Group
(ECL (EG)),1 includes both B2C and B2B contracts.2 Th erefore, this norma-
tive question is now, for the fi rst time,3 on the table for political decision
making by the European Union legislator.
Pursuant to Article 77 (Eff ects of unfair terms) of the proposed instru-
ment, a contract term which is supplied by one party and which is unfair is
1
Commission Expert Group on European Contract Law, Feasibility Study for a future
instrument in European Contract Law, 3 May 2011, printed in the annex of this
volume.
Th is is one of the ‘as if’ conditions under which the Expert Group was instructed to
work by the European Commission. See ‘A European contract law for consumers
and businesses: Publication of the results of the Feasibility Study carried out by the
Expert Group on European contract law for stakeholders’ and legal practitioners’
feedback’.
See, however, with a much more narrow focus, Art. 7, Directive 2011 / 7 / EU of 16
February 2011 on combating late payment in commercial transactions (recast),
OJ L 48, 1.
2
3
Page 4
132
Part V
Martijn W. Hesselink
not binding on the other party. Article 81 ECL (EG) further specifi es that
in a contract between a business and a consumer, a term supplied by the
business is unfair ‘if it signifi cantly disadvantages the consumer, contrary
to good faith and fair dealing’. However, pursuant to Article 85 (ECL) EG in
contracts between businesses a non-individually-negotiated term is unfair
only if it signifi cantly disadvantages the other party ‘and is of such a nature
that its use grossly deviates from good commercial practice, contrary to good
faith and fair dealing.’
Th us, the Expert Group has decided 1) to include B2B contracts within
the scope of the review for unfairness, but 2) to opt, for that purpose, for a
test that diff ers from the one provided for B2C contracts. In this paper, I will
briefl y discuss these two decisions in the light of the main rationales that
have been proposed for the unfairness control of contract terms.
II. Unequal bargaining
What justifi es judicial control of contract terms? Th e classical view is that
the review of unfair terms is a form of weaker party protection. It is meant
to compensate somehow for unequal bargaining. Standard term contracts
are ‘contracts of adhesion’ which are off ered to the customer on a take-
it-or-leave-it basis.4 Since the economic power of the seller prohibits any
meaningful negotiation of these terms, which are simply dictated by the
seller, they are bound to be extremely one-sided, in favour of the seller.5
Th is explanation is well entrenched in European law. For example, al-
ready the Preliminary programme of the European Economic Community
for a consumer protection and information policy of 1975 sets out, as its
fi rst principle concerning the protection of the economic interests of con-
sumers, that ‘purchasers of goods or services should be protected against
4
F. Kessler, Contracts of adhesion – some thoughts about freedom of contract, 43
Columbia Law Review (Colum. L. Rev.), 1943, 629. For a recent statement, see
H.-W. Micklitz, N. Reich & P. Rott, Understanding EU Consumer-Law (Antwerpen:
Intersentia, 2009), ch. 3 (H.-W. Micklitz), 122. See also D. Mazeaud’s contribution
to this volume.
Clearly, standard terms do not only occur in sales but also in services and indeed
many other sorts of contracts. Moreover, in B2B there are not only standard sales
terms but also standard buying terms, which can be equally one-sided (like in
the case of certain supermarket chains). It is only for simplicity’s sake that I will
consistently refer to the seller’s standard terms.
5
Page 5
Unfair Terms in Contracts Between Businesses
133
Martijn W. Hesselink
the abuse of power by the seller, in particular against one-sided stand-
ard contracts [and] the unfair exclusion of essential rights in contracts’.6
Th e Unfair Terms Directive of 1993, in its preliminary recitals, explicitly
refers to this reason as the justifi cation for the control of unfair terms.7 And
the Court of Justice of the European Union, since Océano has consistently
explained the rationale of the Unfair Terms Directive in terms of weak bar-
gaining power: ‘Th e system of protection introduced by the Directive is
based on the idea that the consumer is in a weak position vis-à-vis the seller
or supplier, as regards both his bargaining power and his level of knowledge.
Th is leads to the consumer agreeing to terms drawn up in advance by the
seller or supplier without being able to infl uence the content of those terms’.8
Moreover, as the Court has regularly pointed out since Mostaza Claro, as a
measure aiming at consumer protection in this sense the Directive ‘is essential
to the accomplishment of the tasks entrusted to the Community and, in par-
ticular, to raising the standard of living and the quality of life in its territory’.9
Th is explanation in terms of weaker party protection and unequal bar-
gaining is problematic in a number of ways. First, if abuse of bargaining pow-
er is the problem then it is not clear why price and other core terms should be
excluded from the review. Clearly, a strong party will use its bargaining pow-
er in the fi rst place to extort a better price. Th e counter argument that core
terms, just like individually negotiated terms, should remain in the realm of
freedom of contract is not very convincing if the very reason for review of
terms is the abuse of party autonomy. If anything, such abuse is worse when
it comes to core terms. Secondly, and more fundamentally the weaker party
hypothesis seems empirically very doubtful. Not only are unfair terms oft en
used in B2B against economically stronger parties. Also, as long as a seller
enjoys no market power on a functioning market other sellers will propose
better terms.10 Indeed, it has been demonstrated that even for a monopolist
6
7
OJ C 92, 25 April 1975, 2-16, no. 19.
Directive 93 / 13 / EEC of 21 April 1993 of 5 April 1993 on unfair terms in consumer
contracts, OJ L 95, 29.
Joined Cases C-240 / 98 to C-244 / 98 Océano Grupo Editorial v. Roció Murciano
Quintero; Salvat Editores SA v. José M. Sánchez Alcón Prades, José Luis Copano
Badillo, Mohammed Berroane and Emilio Viñas Feliú [2000] ECR I-4941, para 25.
Case C-168 / 05 Elisa María Mostaza Claro v. Centro Móvil Milenium SL [2006] ECR
I-10421, para 37.
10 Cf. H.B. Schäfer & P.C. Leyens, Judicial control of standard terms and European
private law, in: P. Larouche & F. Chirico, Economic Analysis of the DCFR; Th e work
of the Economic Impact Group within CoPECL (Munich: Sellier, 2010), 97-119,
99; A. W. Katz, Standard form contracts, in: P. Newman (ed.), Th e new Palgrave
8
9
Page 6
134
Part V
Martijn W. Hesselink
it would not be rational to shift risks to the buyer, except where the latter is
the cheapest cost avoider, because that would unduly reduce the volume of
his (monopoly) market.11 Th erefore, it seems implausible that the pervasive
presence of unfair terms is caused primarily by unequal bargaining.
In any case, being in a weak bargaining position vis-à-vis the other par-
ty, agreeing to terms drawn up in advance by the party without being able
to infl uence the content of those terms and, generally, to one-sided standard
contracts is not a condition in which only consumers fi nd themselves. Busi-
nesses come in all sizes and they do not contract exclusively within their
own size group. Unequal bargaining is just as pervasively and structurally
present in business to business contracting as it is in business to consumer
contracting.12 And if it is a problem then it is no less so in B2B than in B2C.
In other words, if the rationale is protection against abuse of bargaining
power, then it is clear that this protection could (and indeed should, on ac-
count of the equality principle)13 extend also to businesses.14
III. Distributive justice
In the mixed economies of the European Union the market is an important
determinant of distributive outcomes. People will become rich or poor very
Dictionary of Economics and the Law (New York: Palgrave Macmillan, 2002),
Vol. 3, 502; D. Kennedy, Distributive and paternalist motives in contract and tort
law, with special reference to compulsory terms and unequal bargaining power 41
Maryland Law Review (1982), 563-658, 616.
11 H.-B. Schäfer & P.C. Leyens, loc. cit.; B.E. Hermalin, A. W. Katz & R. Craswell,
Contract Law, in: A.M. Polinsky & S.M. Shavell (eds.), Handbook of Law and Eco-
nomics (Amsterdam: North-Holland, 2007), Vol. I, 3-138, 97; D. Kennedy, loc. cit.,
616.
12 V. Roppo, From consumer contracts to asymmetric contracts: a trend in European
contract law?, 5 European Review of Contract Law (ERCL), 2009, 304-349.
13 In Italy, a case was brought before the Constitutional Court challenging the lim-
itation of the national legislation transposing the Unfair Terms Directive, as a
violation of Art. 3 of the Constitution (‘Tutti i cittadini […] sono eguali davanti
alla legge, senza distinzione […] di condizioni personali e sociali.’). Th e appeal
was rejected, on rather surprising grounds. See Corte costituzionale, no 469 / 2002.
Critical V. Roppo, loc. cit., who sees room for a new constitutional challenge.
14 In the same sense D. Mazeaud, Unfairness and Non-negotiated Terms, in this
volume.
Page 7
Unfair Terms in Contracts Between Businesses
135
Martijn W. Hesselink
much as a result of market transactions. Of course, how well people do on
the market is determined, in the fi rst place, by what they are able to bring to
the market, i.e. their initial economic resources, personal skills, talents and
other endowments. However, other factors, such as market institutions, play
a role as well. One such market institution is contract law and diff erent con-
tract laws lead to diff erent distributive outcomes. Th erefore, someone who
cares about distributive justice might take an interest in contract law for this
reason. Can contract law, in particular the protection against unfair terms,
contribute to a fairer distribution of resources between rich and poor?
As we saw, the party using standard terms is not always the stronger
party in the contractual relationship. Moreover, even where she is the rela-
tional weakness of the other party still does not imply that she is also socially
weak in the sense of belonging to the less privileged section of society. Many
consumers, e.g. of luxury goods, are actually quite rich, and more so than
their sellers, like in the case of the owner of a small business. Also, many
large companies are owned by poor people, in the sense that their pension
funds are the shareholders. Th erefore, consumer protection (against unfair
terms or other) might even turn out to have the reverse eff ect of distribut-
ing from the rich to the poor. Secondly, on a functioning market attempts
at redistribution between buyers and sellers would oft en be neutralised by
the fact that the seller would manage to pass on the loss that he is supposed
to suff er from the distributive contract law measure, eg an increased risk
resulting from the ban of an exclusion clause, as costs, to the buyer through
the price. Th erefore, typically in reality the redistribution would be a redis-
tribution among buyers. And it is not clear that this redistribution would
necessarily be from rich to poor buyers. Th ere is even the risk that the poor-
est are made worse off . If the sellers manage to pass on the cost of no longer
being able to shift contractual risks to buyers, by raising prices, this will
price the poorest buyers out of the market. For those reasons and others, it
is not easy to successfully pursue a deliberate distributive agenda through
contract law.15 Moreover, it has also been pointed out that such a policy
would also be ineffi cient. Th e tax and transfer system, it is argued, could
achieve the same distributive outcome with a smaller waste of resources,
thus leaving a larger pie for redistribution towards the least privileged.16
15 D. Kennedy, loc. cit., 614; H. Eidenmülller, Effi zienz als Rechtsprinzip (Tübingen:
Mohr Siebeck, 2005), 295-306 and, specifi cally with regard to the DCFR, idem,
Party autonomy, distributive justice and the conclusion of contracts in the DCFR,
5 ERCL, 2009, 109-131.
16 L. Kaplow & S. Shavell, Why the legal system is less effi cient than the income tax
in redistributing income, 23 Journal of Legal Studies (JLS), 1994, 667-681.
Page 8
136
Part V
Martijn W. Hesselink
In any case, however, also such a distributive agenda does not suggest
a limitation to consumers. On the contrary, the Rawlsian diff erence prin-
ciple requires that diff erences between groups in society should work for
the benefi t of the least privileged.17 Th is means that if it can be shown that
consumers as a group are not worse off than certain businesses a distinction
between consumers and such businesses could be regarded as unjust. Th at
is not unlikely, since the people that would benefi t from small business or
sole trader protection (such as shop owners) may, on average, indeed be less
well off than those who benefi t (most) from consumer protection against
unfair terms.
IV. Market failure
In a famous paper, for which he later earned the Nobel Prize, Akerlof dem-
onstrates how information asymmetry can lead to market failure.18 He uses
the (hypothetical) example of the market for second hand cars where sellers
know the hidden defects in their cars but where it would require buyers dis-
proportionate costs to fi gure out which are the good cars and which the bad
ones (the ‘lemons’, in American slang). On such a market buyers will assume
that sellers off er average quality. Th erefore, not only will it be impossible for
sellers to compete on quality (because potential buyers would not notice)
they also have incentives to off er below average quality and thus be able to
reduce the price. Th is leads to a race to the bottom in which the bad cars
will drive the good cars out of the market. And ultimately, the market may
collapse altogether. Th e only way to prevent failure in certain markets with
structural information asymmetry may be state intervention. Th e market
for standard terms can be assimilated to such a lemons market.19 Since
17 J. Rawls, A Th eory of Justice, revised edition (Cambridge, Massachusetts: Belknap
Press, 1999).
18 G.A. Akerlof, Th e market for “lemons”: quality uncertainty and the market mecha-
nism, 84 Quarterly Journal of Economics (QJE), 1970, 488-500.
19 H.-B. Schäfer & P.C. Leyens, loc. cit.; Münchener Kommentar, Vor § 305-§ 306a
(J. Basedow), 5; Münchener Kommentar, § 307 (E.-M. Kieninger), 38-40; H. Eiden-
müller, loc. cit., G. Wagner, Mandatory Contract Law: Functions and Principles in
Light of the Proposal for a Directive on Consumer Rights, 3 Erasmus Law Review
(2010), 47; A. W. Katz, loc. cit.; H. Kötz, Der Schutzzweck der AGB-Kontrolle; Eine
rechtsökonomische Skizze, in: J. Basedow, K. Hopt & R. Zimmermann (eds.), Un-
dogmatisches: Rechtsvergleichende und rechtsökonomische Studien aus dreißig
Page 9
Unfair Terms in Contracts Between Businesses
137
Martijn W. Hesselink
standard terms deal with a variety of contingencies that are not core to
the transaction and are also unlikely to occur, it is only rational for a party
confronted with them not to engage in trying to understand or negotiate
them, because almost always the costs would outweigh the likely benefi ts.
Th erefore, in the absence of state intervention bad clauses are likely to drive
out the good ones (adverse selection) which could ultimately lead to a col-
lapse of the standard term market. Parties would be forced to go back to old
fashioned individualised contracting which would make everyone worse
off because we would forego the massive social gains derived from this
type of standardisation (imagine only the queues at the railway station). In
other words, the information asymmetry which is inevitable in a market for
standard terms because of the rational ignorance of customers would risk to
prevent the possibility for all parties concerned to gain the advantages that,
in principle, are yielded by standardisation in mass contracting (economies
of scales). As to the solution, in the example of the market for second hand
cars mandatory disclosure duties could enable buyers to distinguish the
good cars from the lemons whereas implied warranties could force sell-
ers to point out defects, resulting in lower prices for lemons or their total
disappearance from the market. Similarly, judicial control of unfair terms
as to their incorporation and content drives the lemon-like terms out of
the market.
Even though the assimilation of unfair terms with ineffi cient terms is
convincing descriptively, that in itself does not suffi ce for justifying state
intervention. Normative law and economics requires the additional utilitar-
ian argument that the maximisation of social welfare is an important policy
aim.20 Clearly, such utilitarian reasoning is not uncontroversial, not even
in this case where the usual (and justifi ed) liberal critique of cost benefi t
analysis is less relevant. A libertarian, for example, might argue that regula-
tory intervention is illegitimate because this pre-empts appropriate market
responses, eg from sellers (or their organisations) who might try to build
up a reputation of reliability (signalling), or from customers’ organisations
who could endorse good standards through quality labels, or simply that
any profi ts made by sellers through off ering unfair terms are owned by
these sellers (in spite of any social loss, including eventual collapse of the
market).21
Jahren (Tübingen: Mohr Siebeck, 2005), 221-245 (originally in Juristische Schu-
lung (JuS), 2003, 209-214).
20 Th is is explicitly acknowledged by H. Kötz, loc. cit.
21 R. Nozick, Anarchy, State and Utopia (Oxford: Blackwell Publishing, 2006).
Page 10
138
Part V
Martijn W. Hesselink
In any case, from the perspective of information asymmetry and market
failure there is no relevant diff erence between business to consumer and
business to business contracts.22 Indeed, in their economic analysis of the
DCFR, H.-B. Schäfer and P. C. Leyens explicitly recommended that the
distinction between the tests for B2B and B2C be abolished: ‘Th e problem of
information asymmetries’, they write, ‘would require a uniform treatment.
Accordingly, the binding modifi cations of the control standard, as foreseen
in the DCFR, ought to be removed. […] Th erefore, the surest path to an
economically reasonable result is to change the wording of the DCFR and
to use the term ‘signifi cant’ for business contracts as well’.23
However, they also recommend the consideration of a ‘cap’, following
the proposal of the English and Scottish law commissions for a ‘transaction
value limit’ according to which contracts with a value greater than £ 500,000
are excluded from control.24 Th e justifi cation for such a limit is that, al-
though distinguishing between diff erent types of contracting parties in this
context does not make sense from an economic perspective, it does make
sense to distinguish between diff erent types of transactions, in particular
in relation to their importance. Th e reason is that when the value of the
contract becomes suffi ciently important it also becomes rational to invest in
trying to understand the proposed standard terms and their implications, if
22 H. Kötz, loc. cit., Münchener Kommentar, § 307 (E.-M. Kieninger), 74. Specifi cally
in relation to the DCFR, see G. Wagner, loc. cit., 62. Contrast C. Herresthal, Con-
sumer Law in the DCFR, in: G. Wagner (ed.) Th e Common Frame of Reference:
a View from Law & Economics (Munich: Sellier, 2009), 163-205, 192, who argues
that in this case market failure may be replaced by government failure. It is not
clear, however, why government would perform worse in controlling terms in B2B
than in B2C contracts, especially if the reference is the relevant default rule. A. W.
Katz, loc. cit., assumes that the lemons problem is worsened in consumer markets
by the higher degree of information asymmetry and by consumers’ relatively lesser
sophistication and access to legal assistance. However, these diff erences should not
matter much, it seems, given the fact that ex hypothesi we are talking about rational
ignorance (in cost / benefi t terms). At most they could provide an argument for a
higher cap (see below) or none at all in B2C.
23 H.-B. Schäfer & P.C. Leyens, loc. cit., 115.
24 Th e Law Commission and the Scottish Law Commission, Unfair Terms in Contracts
(2005), LAW COM No. 292, SCOT LAW COM No. 199, § 5.59. See also Draft Bill
clause 29, for the defi nition of ‘small business contract’. H.-B. Schäfer & P.C. Ley-
ens, loc. cit., say that precise relevant data needed for determining the right sum
are lacking but they think that the appropriate cap may have to be (signifi cantly)
higher.
Page 11
Unfair Terms in Contracts Between Businesses
139
Martijn W. Hesselink
necessary with professional help, even when the provisions deal with risks
that are unlikely to occur.25 Th at is certainly an interesting proposal that was
not (explicitly) considered by the Expert Group.
V. Paternalism
Another possible rationale for unfair terms control is paternalism. A weak
form of such paternalism is found in the German idea that the default rule
that would have applied in the absence of the contract term under con-
sideration should be used as a yardstick for the fairness of the term (Leit-
bildfunktion): a term that strongly deviates from the default rules is, for
that reason, presumed to be unfair.26 Such a presumption is not found in
most other Member States, certainly not that explicitly (and it was also not
adopted as a legal rule in the Expert Group draft instrument). Nevertheless,
this line of thinking was implicitly endorsed by the Court of Justice when
it ruled, in Freiburger Kommunalbauten, that it is for the national court to
decide whether a contractual term is unfair in the sense of the Unfair Terms
Directive. Th e Court justifi ed its decision by referring to Article 4 of the
Directive which provides that ‘all the circumstances attending the conclu-
sion of the contract’ should be taken into account and pointed out that ‘in
that respect the consequences of the term under the law applicable to the
contract must also be taken into account. Th is requires that consideration
be given to the national law’.27
Such a Leitbild approach is paternalistic in the sense that in deciding
whether a certain contract term is binding a decisive role is given to what
the legislator thinks is in the best interest of the parties. It is a weak form of
paternalism in the sense that the contracting parties are free to overrule the
legislator’s idea of their best interest provided that they do so by negotiated
terms. In the Expert Group text, however, the unfairness control of B2C
contracts is not limited to individually negotiated terms. Th erefore, to the
extent that the default rules from which a term deviates become a yardstick
25 H.-B. Schäfer & P.C. Leyens, ibidem.
26 See § 307 BGB (Test of reasonableness of contents) which provides, in para. 2,
that ‘An unreasonable disadvantage is, in case of doubt, to be assumed to exist if
a provision is not compatible with essential principles of the statutory provision
from which it deviates’.
27 Case C-237 / 02 Freiburger Kommunalbauten GmbH Baugesellschaft & Co. KG v.
Ludger Hofstetter and Ulrike Hofstetter [2004] ECR I-03043, para. 21.
Page 12
140
Part V
Martijn W. Hesselink
for unfairness control under the instrument this could be regarded as a
case of strong paternalism. However, the Instrument distinguishes, in this
respect, between the rules for B2C and those for B2B contracts in that, in
the latter, unfairness control remains limited to terms ‘forming part of not
individually negotiated terms’ (Article 85 ECL (EG)). In any case, in the
context of an optional instrument the parties always remain free not to opt
into the regime at all. In that sense, unfair terms control under the Optional
Instrument always remains paternalistic only in a weak sense.28
Paternalism as a rationale for government intervention does not sound
very attractive (although the recent fi nancial crisis has increased its popu-
larity), especially in the area of contract law, where it is generally accepted
that government should try to remain neutral with regard to the parties’
choices.29 However, as D. Kennedy rightly points out, principled anti-pa-
ternalism is by no means neutral: ‘Since refusing to act paternalistically
involves [the decision maker] in applying state force to execute the law of
contracts against those who would have been the benefi ciaries of paternal-
ism, he can’t claim he’s practicing benign neglect. What he’s doing, if he tries
to be a systematic anti-paternalist in public life, is denying his knowledge
of the relative incapacity of groups, of their characteristic mistakes.’30 Ken-
nedy rejects principled anti-paternalism as a shallow view.31 Formulating
and testing hypotheses and models does not always bring us further than
intuition. ‘Th e truth of the matter is that what we need when we make deci-
sions aff ecting the well-being of other people is correct intuition about their
needs and an attitude of respect for their autonomy. Nothing else will help’.32
Default rules are usually explained and justifi ed in the law and econom-
ics literature as representing ‘the hypothetical bargain’, i.e. the rules that
typical contracting parties would have agreed to had they dealt with the
issue, and as being provided by the state to help the parties to save trans-
28 Even an opt-out regime, such as the one provide for in the United Nations Con-
vention on contracts for the international sale of goods (CISG), could count as a
form of ‘libertarian paternalism’ where the merely government only ‘nudges’ the
parties toward the solution it considers to be in their best interest. See R.H. Th aler
& C.R. Sunstein, Nudge; Improving decisions about health, wealth and happiness
(London: Penguin Books, 2009).
29 Cf. P. Malaurie & L. Aynès, Cours de droit civil, Les obligations, 9th ed. (Paris:
Editions Cujas, 1998), Vol. IV, no. 634, contract law should not ‘transformer les
agents juridiques en incapables majeurs’.
30 D. Kennedy, loc. cit., 649.
31 D. Kennedy, loc. cit., 645.
32 D. Kennedy, loc. cit., 646.
Page 13
Unfair Terms in Contracts Between Businesses
141
Martijn W. Hesselink
action costs.33 However, in the absence of any empirical evidence of what
typical parties actually want – or that the currently existing default rules
were meant to represent the hypothetical bargain rather than a fair and
just solution – the normative use of such a theory is indeed shallow, and
frankly also misleading. It is more straightforward to admit that default
rules represent what the (democratically elected) legislator thinks is in the
best interest of typical contracting parties.
Again, for present purposes we need no fi nal answers on whether pater-
nalism, weak or strong, is a legitimate reason, in certain cases, for reviewing
the fairness of contract terms. What matters here is whether this rationale, if
acceptable, would somehow logically or intrinsically be limited to business
to consumer contracts. Again, the answer seems to be no. If people make
mistakes and if it can be determined, sometimes, that certain terms they
have agreed to foreseeably (at the moment of conclusion of the contract)
go against their own best interests in the sense that they should not (as
opposed to ‘would not’ in the hypothetical bargain model) have agreed to
them, then clearly people do not make such mistakes only when they are
acting as consumers. Th ey are likely to make the same mistakes when they
are concluding contracts in the course of a business (be it their own or
somebody else’s). At most, a counter argument could be that at some point
a business should be suffi ciently sophisticated to develop its own standard
terms and to engage in a battle of the forms.34
However, ultimately the paternalistic rationale does not, in the abstract,
provide an argument for or against including business contracts fully in the
scope of unfairness review. It all depends on what the legislator thinks is in
the best interest of the parties to business contracts. Even the fact that the
default rules that would apply in the absence of the term express the legisla-
tor’s view of what is in the best interest of the parties is not decisive in itself
because if the legislator does not accept the review of unfair terms in B2B
contract then the default rules express only what the legislator regards as
best for businesses in the absence of any contractual arrangement, including
by standard terms.
33 See e.g. R. Cooter & T. Ulen, Law & Economics, 6th ed. (Boston: Addison-Wesley,
2011) 292 ff .; L. Kaplow & S. Shavell, Fairness versus Welfare (Cambridge, Massa-
chusetts: Harvard University Press, 2002), 172 ff .; Th e idea that the law should help
the parties in saving transaction costs is obviously based on the Coase Th eorem
(see R. H. Coase, Th e Problem of Social Cost, 3 Journal of Law & Economics (JLE),
1960, 1 ff .).
34 For the view that businesses should always stand on their own feet, see A. Schwartz,
Is contract law necessary?, Max Weber Lecture (EUI, Florence), 2010 / 04.
Page 14
142
Part V
Martijn W. Hesselink
VI. The ethos of the market
If a society is a better one when people engaging in market transactions
are not ripped off , trapped, or misled then, quite apart from distributional,
effi ciency and paternalistic concerns, this may provide a distinct reason for
unfair terms control. For, if good faith and fair dealing among citizens is
an aim in itself, that should be cultivated as a virtue, then it is not suffi cient
or reassuring that any gain derived from unfairness or exploitation will be
re-distributed later on in the most effi cient way (i.e. through tax and trans-
fer). Th e reason is that this would not (directly) improve the ethos of the
market. Th ose who are interested in civic virtues may regard private law as
a ‘seedbed’ of important virtues like respect and solidarity.35 Th e idea of the
civil code as a ‘constitution civile’ seems to appeal to this kind of thinking.36
Indeed, the argument for ‘weaker party protection’ and against ‘exploi-
tation of bargaining power’ that we saw above seem to be better explained
(and more justifi ed) in these ethical terms than as assertions concerning
economically relevant market power. Th us, unfair terms control could be
justifi ed as important ‘seedbed’ of civic virtue and as means towards the
aim of improving the ethos of Europe’s ‘social market’ (see Article 3 TEU),
a market that is meant to be friendly also to the smaller, weaker and inex-
perienced businesses.37 Th e Expert Group’s defi nition (in Art. 2) of ‘good
faith and fair dealing’, a concept to which the unfair term control tests in
Articles 81 ECL (EG) (B2C) and 85 ECL (EG) (B2B) refer, as ‘a standard of
conduct characterised by honesty, loyalty and consideration for the interests
of the other party to the transaction or relationship in question’, certainly is
compatible with such a rationale.
Clearly, such a perfectionist rationale would be looked upon with some
suspicion not only by libertarians but also by liberals who think that the
state should not pursue any moral (or moralistic) agenda. Moreover, oth-
ers, though acknowledging an important role for the market and its insti-
tutions in fostering civic virtues, might think of diff erent virtues such as
self-reliance and competitiveness.
35 W. Kymlicka, Contemporary Political Philosophy: An Introduction (Oxford:
OUP, 2002), 284 ff .
36 G. Cornu, Un code civil n’est pas un instrument communautaire, Recueil Dalloz
(D.), 2002, 351.
37 Cf. Vice-President of the European Commission Viviane Reding, Th e Next Steps
Towards a European Contract Law for Businesses and Consumers, in this volume:
‘Europe is not only a market economy, but a social market economy, as Article 3 of
the Treaty on European Union says clearly’.
Page 15
Unfair Terms in Contracts Between Businesses
143
Martijn W. Hesselink
Again, however, also the market ethos argument does not limit itself to
B2C contracts. To the contrary, if we want to avoid that the market becomes
a jungle then we should subject all its actors, and their use of standard
terms, to minimum standards of good faith and fair dealing.
VII. Comparative Law
Most Member States review unfair terms in business to business contracts.
Th ey oft en do so on the basis of general contract law, i.e. legislation that
does not distinguish between diff erent categories of contracting parties, for
example the general clause of Article 36 of the Scandinavian Contract Act,
§ 305 of the German Civil Code, and the Unfair Contract Terms Act (1977)
in the United Kingdom.38
Oft en, for instance in Germany and the Netherlands, these statutory
rules were preceded by case law, on the basis of the general good faith
clause, where business to business contracts even were the main fi eld of
application. From that perspective, the extension of the control of content
took place in the opposite direction, from B2B towards B2C contracts.
However, there are also Member States where the review of unfair terms
is regarded merely as a matter of consumer protection.39 Th ese are usu-
ally countries where no unfairness review existed before the arrival of the
Unfair Terms Directive. In those countries, therefore, the harmonisation
with a view to assuring the same minimum level of consumer protection
against unfair terms in Europe actually meant the introduction of such
38 H. Schulte-Nölke, C. Twigg-Flesner & M. Ebers (eds.), Consumer Law Compen-
dium; Th e Consumer Acquis and its transposition in the Member States (Munich:
Sellier, 2008), 376, and Christian von Bar & Eric Clive (eds.), Principles, Defi nitions
and Model Rules of European Private Law: Draft Common Frame of Reference
(DCFR), Full Edition, (Munich, Sellier, 2009), 643, lists Austria, Denmark, Es-
tonia, Finland, Germany, Hungary, Lithuania, Netherlands, Portugal, Slovenia,
Sweden, and the United Kingdom as countries that revise unfair terms on the basis
of general rules that do not distinguish, in principle, between business to consumer
and business to business. Th ese countries sometimes limit additional protection
(e.g. black and grey lists) to consumers only.
39 According to H. Schulte-Nölke, C. Twigg-Flesner & M. Ebers (eds.), Consumer
Law Compendium, loc. cit., 377 and Christian von Bar & Eric Clive (eds.), loc cit.,
645, these countries include Belgium, Bulgaria, Cyprus, Czech Republic, France,
Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Poland, Slovakia and Spain.