OUTFLANKING PROTECTIVE LEGISLATION—SHAMS AND BEYOND
| Published date | 01 January 1981 |
| DOI | http://doi.org/10.1111/j.1468-2230.1981.tb01622.x |
| Author | Andrew Nicol |
| Date | 01 January 1981 |
OUTFLANKING PROTECTIVE LEGISLATION-
SHAMS
AND BEYOND
I INTRODUCTION
THE
literature on freedom
of
contract and judicial efforts to limit
it is extensive. The concerns of this article are statutory controls
on
contract terms and the attempts by those with superior bargaining
power to avoid the controls. In terms more familiar in the context
of tax,
I
shall examine methods of
avoidance,
that is attempts to
draft contracts
so
that the controls do not bite, rather than methods
of
evasion, i.e.
of flouting of the law without colour of excuse.
I
shall
also review the reaction of the courts to such tactics and in particular
their use of the concept of a sham to describe
a
document which
does not reflect the parties’ real intentions. Many of the examples
will be drawn
from
the area
of
residential occupancy agreements,’
but the comments are intended to have
a
more general application.
The problems are not new. Our knowledge of past abuses of
economic power often comes from corrective legislative measures.
The mendacity
of
twelfth-century ship owners can be gauged, for
instance, from the by-laws of Arles and Marseilles which stipulated
that pilgrims must be provided with a space at least six-and-a-half
to seven hand breadths long and two-and-a-half hand breadths wide
per person.2 Similarly, avoidance devices have been reflected in the
statute book. Thus, as Professor Atiyah has observed3 an early
hop-trade act required a hop grower to inscribe his name in durable
ink on all his bags. A later Act stipulated
a
minimum size for the
lettering and one later still prohibited the use of any other name
beside that of the owner.G
It is sometimes said that the imposition of statutory terms amounts
to the reintroduction of
“
status
”
and the demise of
“
contract,”
in contrast to the movement from status to contract which Maine
characterised as the mark of progressive societies.’ But Maine used
“
status
”
to refer to the sum of power and liabilities which attached
to
a
person irrespective of his will. Few vestiges of
“
status
”
in this
sense remain. Infancy is
a
rare example9 and today’s landlord
or
employer
or
seller
of
goods is not in the same league. Superficially
his position is the same as a tenant
or
employee
or
buyer faced with
1
Although this is
a
cumbersome expression, it is necessary
as
will
be
shown later
to
have
a
generic term covering both leases and licences.
2
Prausnitz,
The Standardisafion
of
Corifrucfs
(1937)
p.
17.
A narrower space
was
permitted
if
it was customary
for
couples to sleep head to toe.
3
The Rise and Fall
of
the Freedom
of
Contract
(1979),
p.
549.
4
1800, 39
Geo.
3,
c.
81.
5
1808, 48
Geo.
3,
c.
134.
6
1814, 54
Geo.
3,
c.
123.
7
Scott
L.J.,
Hensotr
v.
L.N.E.R.
[1946] 1
All
E.R.
653. 657.
8
Maine,
Ancient
Law,
Ckp.
V.
See
Otto
Kahn-Freund,
~(1967) 30
M.L.R.
635
reprinted
in
Selected Writings,
p.
78.
A note on
Status
and Contract in British Labour Law
’’
21
22
THE
MODERN
LAW
REVIEW
[Vol.
44
a standard form contract, that is he can
“
take
”
or
“
leave
”
the
packet of legislative terms. The position is only superficially similar
because his choice is likely to be more real. Almost all protective
legislation is confined to controlling the contents of
a
particular
contract. It rarely controls freedom to make or to refuse to make
the prescribed package.1° Control of investment preventing the
supplier of goods from transferring his capital to some other business
is rarer still. The effect of the rent controls, for instance, may be to
reduce the value of rented property, but the property may be sold
and it is unlikely that no purchaser can be found for the capitalised
value
of
its new earning potential. The choice facing
a
tenant is
usually of
a
different order: to accept the standard terms or
to
suffer
homelessness. Secondly,
the
choice facing the landlord is not as stark
as suggested. Statutory terms are imposed on particular types
of
contracts defined with more or less precision. There is scope for an
owner to achieve the same economic result by recasting the form
of the agreement, to circumvent the legislative package.
I1
RESIDENTIAL OCCUPANCY AGREEMENTS
A good example of a relationship which has attracted such legislative
protection and concomitant efforts to avoid or evade them is that
between the residential landlord and a tenant who intends to use
the premises as his home.
A
statutory condition of fitness for
habitability was implied into every letting
of
a working class home
by an Act
of
1885.l’ An express prohibition on contracting out
was added by the Housing Act
1925.12
The current statutory terms
as to repair are now contained in the Housing Act 1961. By section
32
a landlord must undertake to keep in repair the structure, the
exterior and installations and basic utilities. Under this Act the
landlord may exclude these obligations
l3
but only
if
the agreement
has been approved by the court.14
While these implied covenants are important, far more significant
have been the restrictions in the Rent Acts on a landlord’s ability
to stipulate the size of the rent and to reserve a power to repossess
the premises. These twin pillars of the state’s efforts to assist private
residential tenants began as emergency war-time provisions
l5
but
have survived in a much amended form and are now currently
contained in the Rent Act 1977.lS Perhaps surprisingly, Parliament
10
One
example, however,
is
the option
a
council tenant has
to
purchase his home
which is made mandatory by the Housing Act 1980. The Mobile Homes Act 1975
compels
a
site owner
to
offer a contract on prescribed terms but only to a purchaser
who already occupies one
of
his pitches.
S.
1
cf.
Grant
v.
Allen
[1980]
1
All E.R.
720, C.A.
11
The Housing
of
the Working Classes Act 1885,
s.
12.
12
s.
1.
18
s.
33 (6).
14
As
to
the judicial reaction to these terms, see
‘‘
Statutory Covenants
of
Fitness
and Repair, Social Legislation and the Judges” (1974) 37
M.L.R.
377, and
a
reply
at (1976) 39
M.L.R.
43. Restrictions) Act 1915.
Controlled tenancies
”
(Rent
Act 1977,
s.
17);
“
Regulated tenancies
”
(s.
18); and
“
Restricted Contracts
(ss.
19,
15
The increase
of
Rent and Mortgage Interest
16
There is currently a hierarchy
of
protections.
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