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Professionals v. Consumers: should SMEs be treated as laymen?



This Friday I will be presenting a paper at the Eighth International Conference on Contracts, in Fort Worth, Texas. The Conference is sponsored and hosted by Texas Wesleyan University School of Law and Wolters Kluwer Law & Business. The paper is entitled Professionals v. Consumers: Should SMEs Be Treated as Laymen?

Here is the abstract:

In a legendary combat, David, a young warrior, faced Goliath using only his sling and five stones. Despite being manifestly shorter, he accepted the Philistine giant’s challenge. It seems that the terms of such a challenge where quite simple, so the parties felt no need for a written contract – all’s fair in love and war. In the end, and utterly unexpectedly, David won the battle, after striking Goliath with a stone in the forehead. This is a traditional narrative about the struggle between the powerful and the weak, arrogance, courage and astuteness. In the business world, however, it takes more than a sling and a few stones to prevail. Although Private Law is based on the assumption that the parties are equal and free, this is not always the case. Some warriors are bigger than others. In modern Contract Law, the meaning of “freedom of contract” has changed somewhat when compared to that prevailing at the time of classical Contract Law. Nowadays, social elements are widely included in order to maintain contractual fairness in some contractual relations. This happens not only in contracts between consumers and professionals but also between Small and Medium Sized Enterprises (SMEs) and larger companies. Despite being professionals, and thus not benefitting from the protection of Consumer Law, the position of SMEs deserves particular attention from European Contract Law, especially when we take into account the importance of this type of companies to the Internal Market. Traditionally, one of the explanations for consumer protection focuses on negotial asymmetry vis-à-vis the professional, as the former is considered an uninformed, inexperienced and even economically dependent subject. SMEs, given their small size, can be as vulnerable as consumers regarding the lack of information, inexperience or dependence. The situation of the small professional, the farmer, the fisherman, the shopkeeper, the artisan, etc., is mostly the same as that of the consumer. From a normative coherence standpoint (treating similar cases similarly) there is a strong argument in favour of the extension to SMEs of the protection granted to consumers, at least in some situations. From this perspective, there are no significant arguments opposing the expansion of the protection offered to consumers to vulnerable SMEs or non-profit organizations.

Our purpose is to discuss if SMEs should benefit from a special protection when they conclude a contract based on standard contract terms drafted by a larger company. Should the big company that wishes to rely on such terms have the duty to raise the SMEs’ awareness of not individually negotiated terms, even though the latter is also a professional, and not a fragile consumer? Are companies, even small ones, not supposed to have professional knowledge and additional carefulness? Is Contract Law losing its harmony by creating too many specific rules for special categories of persons?

Update: Professor Jennifer Martin kindly referred to my presentation here.


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