EQUITY AND OPPORTUNISM IN THE LAW OF CONTRACT:

Date01 December 2018
Published date01 December 2018

A Case Study in Fusion by Diffusion

In recent years, the debate over the fusion of law and equity has been reinvigorated. One significant contribution comes from Harvard Law School's Professor Henry Smith, who has argued that equity displays a distinctive opportunism-countering function, serving as a “second-order safety valve”, which arrests opportunistic conduct ex post via tailored standards, assisted by various proxies and presumptions. The purpose of this article is to explore Smith's “opportunism thesis” in the context of contract law, with particular reference to the doctrines of duress, undue influence and unconscionability. The present author argues that the opportunism thesis is a promising account of the doctrinal architecture of these vitiating factors, while emphasising that the recognition of such an “equitable” function does not necessarily point in an anti-fusionist direction. On the contrary, the author argues that the evolution of the “anti-opportunism” idea has tracked a narrative of “fusion by diffusion” – a process by which equity's original “anti-opportunism” function has travelled across the common law–equity jurisdictional divide in a highly interactive manner, generating doctrinal transplantation and cross-fertilisation.

I. Introduction

1 To fuse or not to fuse? It is said that “[d]ebate about the fusion of law and Equity goes back for centuries”.1 Moreover, the terms of the

debate have shifted over time.2 It is not always clear what form of fusion is at stake – whether it be the fusion of administration, procedure, terminology, substantive doctrines and remedies, or something else altogether.3 Generally speaking, we have transitioned from an early interpretive debate over the effect of the UK Judicature Acts of 1873 and 18754 to a more wide-ranging discourse in which anti-fusionists seek to identify a distinctive quality to equity that sets it apart from the common law, while pro-fusionists deny this exists and hence seek to fold equity back into the main private law categories of tort, contract and restitution, often in the name of “consistency”, “rationality” and “coherence”.5

2 In recent years, American commentators have shown a renewed interest in this debate.6 Significant among these is the contribution of Harvard Law School's Professor Henry Smith, who in a series of papers has presented what the present author will call “opportunism thesis” of equity.7 This thesis seeks to unify equitable doctrine through what Smith has described as its characteristic opportunism-countering function –

a “second-order safety valve” approach that catches opportunistic conduct ex post via tailored standards, assisted by various proxies and presumptions.8

3 The purpose of this article is to explore the opportunism thesis of equity in the context of the law of contract, in particular the vitiating factors of duress, undue influence and unconscionability. The gist of the present author's argument is that the opportunism thesis is indeed a very useful and promising account of the doctrinal architecture of these vitiating factors, which can be seen as possessing an opportunism-countering function in the sense in which Smith understands it. However, the author caveats that the opportunism thesis does not necessarily point in an anti-fusionist direction. Rather, while one can and should certainly preserve a distinct anti-opportunism function, the author argues that the evolution of the “anti-opportunism” idea has in fact tracked a narrative of “fusion by diffusion” – a process by which ideas travel across the common law–equity jurisdictional divide in a highly interactive manner, resulting in borrowing, intermingling and cross-fertilisation, with the result that legal and equitable doctrines become much more tightly knit. In fact, the interpretive account the author puts forward makes it clear that equity's anti-opportunism function can be best preserved not by attaching it to a circumscribed body of equitable doctrine demarcated by jurisdictional source, but by diffusing it across the legal and equitable landscape.

4 The discussion proceeds as follows. Part II provides a brief tour of the fusion debate.9 Part III outlines Smith's opportunism thesis, its contribution to the debate, and its implications for fusion.10 Part IV develops the thesis suggested above – the model of fusion by diffusion that explains how equity's anti-opportunism function has travelled across the doctrines of duress, undue influence and unconscionability through a process of transplantation and mutual learning.11 Part V concludes.12

II. Search for distinctive equity

5 In the early days of the fusion debate, commentators were preoccupied with what Roderick Meagher, William Gummow and John Lehane famously (or infamously) termed the “fusion fallacy”, which is supposed to involve the conclusion that the Judicature Acts were “not

devised to administer law and equity concurrently but to ‘fuse’ them into a new body of principles comprising rules neither of law nor of equity but of some new jurisprudence conceived by accident, born by misadventure and nourished by sour but high-minded wet nurses”.13

6 Of course, despite the “vehemence of the authors' views”,14 their argument has been subject to scrutiny as itself involving a straw man fallacy. Anthony Mason has observed that “[t]o-day the accepted view is that the Judicature Acts had a procedural operation and that the Acts did not bring about automatic fusion of the rules of common law and equity”.15 Keith Mason, likewise, calls the fusion fallacy “something of a non-existent bogeyman”, since the examples of fallacious reasoning provided by Meagher, Gummow and Lehane rarely involve courts actually expressly or implicitly drawing on the Judicature Acts in applying equitable concepts in common law contexts.16 Even the editors of the latest edition of Meagher, Gummow & Lehane's Equity: Doctrines & Remedies have acknowledged that “probably no one today seriously asserts that the Judicature legislation itself effected a substantive fusion of equity and common law”17 and that “for all the heat and light generated by the fusion fallacy in the twentieth century, the time has come to look forwards to the development of principle in the twenty-first”.18

7 Accordingly, today's anti-fusionists do not rest their case on a somewhat passé interpretive argument but have instead put forth a number of substantive options for identifying a distinctive equity. In this regard, the usual candidates include the idea of equitable discretion – it is commonly said that “[i]f we are looking for distinguishing features between the common law and equity, the former is a rule-based system, whereas equity has always relied upon the existence of discretions to alleviate the consequences of principles and doctrines”.19 Relatedly, one might point to flexibility – given that “any attempt to lay down a set of

rules in advance would always run up against situations that had not been envisaged by the rule-maker”, it fell to the “role of equity to leaven the rule-based system with some flexibility”.20 A recent article by Matthew Harding has put forward a justification of equity's discretion and flexibility along “rule of law” lines, arguing that without equity, citizens might abuse their legal rights to the point where society ceases to have a disposition to engage with the law, impeding the function of law in providing normative guidance, facilitating planning and constituting goals and purposes, which ultimately compromises the rule of law as a mode or technique of governance.21

8 Another commonly cited distinguishing feature of equity is said to be its conscience-based jurisdiction. In a recent paper, Alastair Hudson has called conscience the “organising concept of equity” and observed that the idea of “conscience” and its technical corollary “unconscionable conduct” have invariably appeared in judgments invoking equitable doctrines.22 Hudson defends the concept of conscience as an objectively constituted phenomenon (rather than being purely subjective), pointing to the Freudian idea of the clash between the super-ego (as conscience) and the ego generating a commonly identified sense of guilt, as well as Immanuel Kant's suggestion that human conscience is an internal authority not voluntarily made but incorporated into one's being.23 Thus, the court in any case “is not asking the defendant what they personally claim to think is right or wrong”, but is asking “what the person's conscience, formed by inter-action with that society, ought to have prompted them to do”.24

9 Others commentators reject these options for differentiating equity in favour of similar sounding, but perhaps more specifically identified, distinguishing features. Lionel Smith has argued that equity gives effect to a moral norm requiring respect for other people's obligations (in other words, creating a binding obligation that others do not interfere with people's obligations, which equity instantiates through its technique of converting personal rights into property rights – a feature which accounts for a range of equitable doctrines, for instance, the enforceability of express trust interests against gratuitous transferees

from the trustee).25 He has also suggested a second distinguishing feature which he calls “justiciability of motive”. As he has pointed out, while the common law usually does not examine a party's motives, equity “inquires into good faith as a matter of course”, for example, in the bona fide purchaser defence.26 More broadly, he has suggested the possibility of a distinctive equitable “tradition”, which (like language) plays a part in identity and is hence worth conserving: “[i]f Equity, with its particular vocabulary and syntax of legal reasoning, is part of one's identity, then one can hardly be expected to give it up on the basis of an argument that things would be easier to understand if there was only one legal...

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