Standard-form contracts: consumer protection and unfair terms

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What is a standard-form contract?

Under section 2 of the Standard Contracts Law, 5743-1982, a “standard-form contract” is the text of a contract whose terms, all or some of them, were set in advance by one party so that they serve as terms for many contracts between that party and persons who are not identified in number or identity. The party that offers to contract on the basis of the text is the “supplier”, and the other party is the “customer”, regardless of which of them gives and which receives. The purpose of the Law is to protect customers against unfair terms in standard-form contracts (section 1).

A “term” also includes a stipulation that the contract refers to and any other stipulation that is part of the engagement, but not a stipulation that the supplier and the customer agreed on specifically for a particular contract (section 2). Terms of use of a website or an app, the terms of an online store and a contract to join a service may be a standard-form contract, if they were drafted in advance for use in many contracts. The sections discussed on this site are collected on the page the Standard Contracts Law in the legislation index.

When is a term in a standard-form contract an “unfair term”?

Under section 3, an unfair term is a term that, taking into account all the terms of the contract and other circumstances, is unfair to customers or gives the supplier an unfair advantage that may lead to unfairness to customers; a court and the Standard Contracts Tribunal cancel or change such a term. Section 4 lists terms that are presumed to be unfair, and the supplier may rebut the presumption. Section 5 lists two terms that are void under the Law itself.

On exemption-from-liability terms see Limitation of liability in a contract: what works, what does not, and how to avoid mistakes, and on an arbitration clause in a contract with a consumer see An arbitration clause in a consumer contract: is it binding?.

An unfair term in a website’s terms of use: what the Supreme Court held

A website’s terms of use, the terms of an online store or terms accepted by ticking a box are a standard-form contract when they were drafted in advance for use with many customers, and a “term” also includes a clause in a document that the terms refer to (section 2). The four decisions in the table concern two clauses that recur in the terms of use of international companies: the place of jurisdiction and the governing law. The decisions themselves are collected in the table below.

What follows from these decisions:

• Jurisdiction abroad: a clause that sends an Israeli customer to litigate in another country is presumed unfair, and the supplier must show that it is not unfair (section 4(9)).
• Foreign law: when Israeli law applies, a foreign law clause does not take a consumer outside the Consumer Protection Law. Whether a foreign law clause is unfair also in matters outside the Consumer Protection Law is examined on the circumstances of each case, and there is currently no binding precedent that sets a sweeping rule.
• A small business: the Standard Contracts Law protects a “customer”, not only a consumer (section 2), and in the Troim Miller case the court held by a majority that the choice of law clause is unfair also to small businesses that bought advertising services from Facebook, and the case was returned to the Magistrates’ Court to examine whether the applicants are a small business.

The details for website owners, including ten clauses that recur in copied terms and do not comply with the law, are on the page Online store terms of use: what they must contain. For businesses that buy software as a service from a foreign supplier, see SaaS agreements.

Which terms are not examined under the Standard Contracts Law?

The Law does not apply to four kinds of terms (section 23): a term that sets the monetary payment the customer or the supplier will pay for the subject of the transaction, if it is worded in plain and clear language; a term that matches terms set in legislation, in line with the purpose of the legislation; a term that matches terms set in an international agreement to which Israel is a party; and a collective agreement. The Law also does not detract from any other law under which a contract or a term may be void or voidable (section 24).

So, as a rule, you cannot argue that the price itself is “unfair” if it is written clearly, but you can challenge a term that allows the supplier to change the price after the engagement (section 4(4)).

How to check a term in a standard-form contract, step by step:

1. Was the text set in advance by one party to be used in many contracts, and was the term not agreed specifically between you for this contract (section 2)?
2. Is the term excluded from the Law, for example a price worded in plain and clear language or a term that matches legislation (section 23)?
3. Is the term void under the Law itself: denying or limiting the right to go to court, or an exemption from liability for bodily injury or for a malicious act (section 5)?
4. Is the term listed among the presumptions of unfairness in section 4? If so, the presumption works in your favor, and the supplier may rebut it.
5. If not, is it unfair to customers or does it give the supplier an unfair advantage, taking into account all the terms of the contract and the circumstances (section 3)?

Who can ask to cancel an unfair term, and where?

There are two routes. A court that finds, in proceedings between a supplier and a customer, that a term is unfair will cancel it in the contract between them or change it to the extent needed to remove the unfairness (section 19(a)). The Standard Contracts Tribunal hears requests to cancel or change an unfair term filed by the bodies listed in section 16(a); every panel of the Tribunal includes at least one representative of a consumer organization (section 7(a)).

Proceedings in the Tribunal do not detract from a court’s power to hear an argument that there is an unfair term in a contract made under the same standard-form contract, and proceedings in a court do not prevent the Tribunal from hearing it (section 21).

What can a customer who signed a standard-form contract with an unfair term do?

• Argue for canceling or changing the term in proceedings against the supplier. The court takes into account all the terms of the contract, the other circumstances and the special circumstances of the matter (section 19(b)).
• Turn to the Commissioner for Consumer Protection and Fair Trade or to an authorized customers’ organization, which may ask the Standard Contracts Tribunal to cancel or change the term (section 16).
• Consider a class action when the term harms many customers: a claim against a dealer (business) in a matter between it and a customer is one of the claims in which a motion to certify a class action can be filed (item 1 of the Second Schedule to the Class Actions Law, 5766-2006). See How to file a class action: a step-by-step guide.

Even if you signed, a term found unfair by the Tribunal or the court will be canceled or changed, and you will not be bound by it in its unfair wording (sections 17–19). Signing a standard-form contract is not unlimited consent to all its terms. The practical meaning is that even against a standard-form contract there is a route of enforcing a breached contract, without the unfair term standing in the way.

Frequently asked questions

Does signing a standard-form contract bind me to all its terms?

Not necessarily. A court that finds, in proceedings between the supplier and the customer, that a term is unfair will cancel it in the contract between them or change it to the extent needed to remove the unfairness (section 19(a) of the Standard Contracts Law). A term that denies the customer’s right to go to court, or that exempts the supplier from liability for bodily injury or for a malicious act, is void (section 5).

Is an arbitration clause in a standard-form contract valid?

A term providing that every dispute between the supplier and the customer will be decided in arbitration is presumed to be an unfair term (section 4(8) of the Standard Contracts Law), and so is a term that refers a dispute to arbitration when the supplier has more influence over its terms, even if the supplier proved that the arbitration itself is not unfair (section 4(10)). A term that denies or limits the customer’s right to go to court is void (section 5(a)).

Can you challenge the price itself in a standard-form contract?

As a rule, no. The Law does not apply to a term that sets the monetary payment for the subject of the transaction, if it is worded in plain and clear language (section 23(1) of the Standard Contracts Law). A term that allows the supplier to change the price at its sole discretion after the contract is made is presumed to be an unfair term, unless the change results from factors outside its control (section 4(4)).

Does the Standard Contracts Law also apply to businesses?

Yes. A “customer” is a person to whom a supplier offers that their engagement will be under a standard-form contract, regardless of whether that person receives or gives something (section 2 of the Standard Contracts Law). The definition is not limited to consumers, so a business that contracted under a standard-form contract can also argue that a term in it is unfair.

What is the difference between an unfair term and a void term?

An unfair term (section 3), including a term presumed to be unfair (section 4), is canceled or changed by a court or the Standard Contracts Tribunal. A term that section 5 declares void has no effect under the Law itself: a term that denies or limits the customer’s right to go to court, and a term that exempts the supplier from liability for bodily injury or for a malicious act.

Is a clause in a website’s terms of use that gives jurisdiction to a foreign court binding on me?

A term in a standard-form contract that departs from the legal rules on the place of jurisdiction, or that gives the supplier an exclusive right to choose it, is presumed unfair (section 4(9)). In the Ben Hamo case, a clause giving jurisdiction to California in Facebook’s terms of use was canceled for this reason (LCA 5860/16).

Can a small business argue that a term in a platform’s terms of use is unfair?

Yes. The Standard Contracts Law protects a “customer”, not only a consumer (section 2). In the Troim Miller case, the court held by a majority that the California law clause in Facebook’s advertising contract is unfair to its consumer customers, including small businesses that bought advertising services from it (LCA 1901/20).

I ticked “I have read and agree”. Does that make all the terms valid?

No. A term in which the customer is required to confirm or declare that they read the contract is itself subject to a presumption of unfairness (section 4(12)). Even after ticking the box, a court that finds in proceedings between you that a term is an unfair term will cancel or change it (section 19).