Introduction:
Unconscionable contracts are written in a way that benefits one party while placing onerous, unfair, and unjust obligations on the other. A contract is considered unconscionable if it is so egregious and irrational given the commercial customs of the time and location that it cannot be upheld. The unconscionability concept enables the court to interfere in party contractual relationships and alter such agreements. When there are both unfair contract provisions and poor bargaining, the defence of unconscionability is invoked. This blog explains thevariations of unconscionability as well as how Indian law applies the notion of unconscionability. The article also discusses the problem of unconscionability in relation to WhatsApp’s recent case.
Types of Unconscionability:
Understanding procedural unconscionability requires understanding how each clause was negotiated and how the contract was ultimately negotiated. This results from the parties’ divergent negotiation positions, a lack of compelling options, and unfair surprise. Weaver v. U.S. Oil Co.,the Court listed a number of factors that could be taken into account when determining procedural unconscionability, including the real and voluntary meeting of the parties minds, age, educational background, IQ, relative bargaining power, the person who drafted the contract, whether the terms were explained to the weaker party, and the contract’s deceptive appearance or language.
Substantial unconscionability can be understood by referring to the contract or a few unfair terms of the contract, such as the unfair price of the contract, the limitations on remedies, and the disclaimers of warranties, which make the contract extremely harsh, oppressive, impossible to implement, or one-sided.
Elements of an Unconscionable Contract:
A contract could be deemed unconscionable for a number of reasons or components. In circumstances of unconscionable contracts, the party seeking to terminate the agreement must demonstrate one of the following:
In situations where one party takes unfair advantage of the other party in some way, it is said that one party exerted undue influence over the other when it put unreasonable pressure on the other party to sign the contract.
When one party employs intimidation or threats to coerce the other side into signing a contract, duress has taken place. Threatening behaviour can take many different forms, such as making physical threats or delaying the release of the contract’s subject products until the other party has signed it.
When one party has an unfair advantage over the other, there is unequal negotiating power. This can be proven by proving that one party is aware that the other clearly did not comprehend the terms of the contract.
When the party who drafted the contract introduces a term or clause that the other party was unaware of, this is known as an unfair surprise. It also contains a term or terms that fall short of what the other party anticipates.
If one of the parties tries to limit their culpability to a breach of contract, a limited warranty would render the agreement unconscionable. It would likewise be true if the offending party attempted to restrict their liability to any harm they could create.
The Grey Area that exists:
There is no definition of unconscionability in any Indian law. There have been numerous discussions on it, and the Law Commission of India urged in its 103rdand 199th Reports that the current laws be changed to safeguard our nation’s inhabitants from unfair contracts. To comprehend the idea of unconscionability and how it is applied to contract avoidance, we can look at many other clauses of the Indian Contract Act.
A contract is gained by undue influence, according to Section 16 of the Act, if one party unfairly dominates the other party and utilizes this unfair position over the other party. According to Section 19, the party whose permission was so gained may choose to void the contract.
In accordance with Section 23, the agreement is void if its goal is against the law, fraud, morality, or public policy.
In the proposed bill, procedural and substantive unfairness were defined, and the 199th Law Commission Report provided standards for determining whether a contract was procedurally or substantially unfair. It was suggested that courts should have the authority to investigate substantive unfairness even when the parties do not raise it, and to grant remedies to the parties if the contract is found to be unfair and unconscionable.
Discussing Unconscionable Contract through the WhatsApp Case:
In the recent case of WhatsApp LLC v. Competition Commission of India, (2021), there were many aspects upon which questions were raised,the aspects are as follows:
- Whether WhatsApp’s Privacy policy of August 2016 violates the Right to Privacy of its users?
- Whether a privacy policy should have specific ‘opt-out’ provisions without the user having to ‘opt-out’ of the application in totality? In this case, whether WhatsApp is obligated to provide a specific option of ‘Not to share data’ with Facebook?
- Whether the manner of seeking ‘consent’ from users who are unable to read and understand the new privacy policy amounts to deception?
The element ofthe unconscionable contract was also raised wherein it was contended that WhatsApp was imposing its terms and conditions on the consumers by disabling the ‘I do not agree’ option. This would lead to the consumer choosing the ‘I agree’ option by force even if the consumer didn’t want to. This type of agreement prima facie is unfair and unjust and is kind of coercive in nature. This was challenged in the court of law. A full-fledged verdict hasn’t been passed yet, but this case laid emphasis on the fact that there is still a grey area regarding the unconscionable contract that needs to be addressed and respective amendments need to be made in the Indian Contract Act to tackle the same.
Remedies as of now for such contracts:
Conclusion:
Due to unfair and unreasonable clauses, some contracts have been declared unconscionable by courts. Many clauses relating to damages, arbitration, class action waivers, and termination in employment contracts, construction contracts, and real estate agreements are against public policy and provide one party an unfair advantage due to their unequal bargaining positions.
Therefore, it is crucial to immediately put the 103rd and 199th Law Commission Reports’ recommendations into action. The provisions of the UCC must be incorporated into our legal system, and legislation allowing the courts to reject and uphold unconscionable contracts must be passed. Legislation should be passed to defend the parties’ interests, advance greater fairness in the contracts, and give all parties an equal bargaining position. The 199th Law Commission made suggestions about procedural and substantive unfairness.
Author(s) Name: Nidhi Kamath (Institute of Law, Nirma University)
