Relative Inequality in Bargaining Power in Common Law and Legal Responses to It in Iranian Law

Document Type : Research Paper

Author

Assistant Professor, Department of Law, Faculty of Theology and Islamic Studies, Shahid Madani University of Azerbaijan, Tabriz, Iran.

Abstract

Introduction
Ensuring balance in contracts has always been a matter of concern for jurists and various legal systems, and rules addressing this issue can be found across different periods and jurisdictions. What remains disputed, however, is the method of establishing such a balance in contractual relations. At the height of the doctrine of freedom of will, many jurists, relying on the idea of commutative justice, regarded the agreements reached by the parties as inherently fair. In contrast, in modern times, numerous jurists, invoking the theory of distributive justice, have advocated for the need to review and reassess contractual terms.
When the parties enjoyed relative equality in terms of access to information, ability to cover transaction costs, retain legal counsel, and undertake other necessary actions, merely ensuring their freedom in negotiations and adherence to the negotiated outcomes appeared to be an adequate solution. However, the Industrial Revolution and its consequences—such as the emergence of large commercial enterprises, multinational corporations, and state-owned companies —significantly altered the balance in contractual relations. Today, the inequality in bargaining power between contracting parties is present in most contracts, with the only variation being in its degree.
This reality has given rise to various theories on how to address it. Some still adhere to the principle that agreements reached through free negotiation should be honored and enforced without regard to the nature of the obligations involved. Others argue that transactions concluded under unequal bargaining power—whether judged by distributive or commutative justice—are inherently unfair and must be adjusted through legal and judicial intervention. One of the key challenges is to examine the approaches to justice and fairness in addressing differences in bargaining power, particularly in the context of Iranian law.
At the same time, legislative and judicial interventions in contractual arrangements have often faced strong opposition, making it essential to examine the rationale for reviewing contracts concluded under unequal bargaining power. In the common law system, the assessment of the parties’ responsibilities at the time of contract formation and performance takes into account the extent of their bargaining power. However, in Iranian law, where judicial discretion is more limited than in common law jurisdictions, it is necessary to determine the appropriate means of addressing abuses of bargaining power.
A review of the legal literature reveals that disparities in bargaining power, which do not fall under recognized defects of consent or abuse, have not been directly addressed in the works of Iranian jurists, with only passing references made to the issue. The working hypothesis of this article is that inequality in bargaining power—when it results in a significant imbalance in the rights and obligations of the parties—requires legal and judicial intervention. However, such intervention should be limited and implemented through specific mechanisms. To this end, we will first define bargaining power, then examine the arguments for and against judicial intervention in contracts based on unequal bargaining power, and finally explore suitable approaches for Iranian law.
Method
The research method used in this study is the description and examination of the prevalent theories with an analytical approach, along with the critique of these theories. And considering all the basic and effective elements like bargaining power and confronting abusive Relative Inequality Bargaining Power, through a logical standpoint to the status of common law and Iranian law
Conclusion
The principle of freedom of contract and the notion of commutative justice can only ensure that a contract reflects the genuine will of the parties when both parties enjoy the possibility of genuine free bargaining. Only under the condition of real bargaining power can the parties, through negotiation, achieve their desired outcomes. The disparity in bargaining power—which today exists systematically in contracts—can produce adverse consequences and jeopardize contractual justice. It is therefore the responsibility of the legislature and the courts to restore justice to contractual relations.
It appears that permitting the interpretation and supplementation of contracts to the detriment of the party possessing greater bargaining power could serve as an appropriate starting point for adjusting contracts concluded through the exploitation of such power. This authorization should be expressly stipulated in Iranian law as a mandatory default rule, so that the parties may not derogate from it by agreement. The reason is clear: given one party’s superior bargaining position, if protective rules are merely default provisions, the stronger party could neutralize their legal effect by inserting contrary terms in the contract. Moreover, since in many cases the parties may find ways to circumvent statutory protections, it is necessary to also provide corresponding judicial remedies. A reasonable approach would be for courts to interpret and supplement contracts in favor of the weaker party.
In addition, the legislature needs to establish the necessary rules governing possible judicial review of contracts, ensuring that the courts exercise such authority within a clearly defined framework. Ultimately, the court should, in interpreting, supplementing, or otherwise reviewing a contract, rely on reasonable and customary terms so that the parties are not faced with obligations entirely inconsistent with their intentions. At the same time, distinguishing between distributive and non-distributive contractual terms and interpreting and supplementing the contract about such distinctions will ensure that interpretation and supplementation are carried out effectively and in accordance with the parties’ interests.

Keywords

References

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Law Quarterly
Volume 55, Issue 2
August 2025
Pages 313-334

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