Citation(2005) 17 SAcLJ 411
Date01 December 2005
Published date01 December 2005

To the extent that sanctity and freedom of contract have been regarded as the cornerstone of English contract law, the stated role of fairness in contract law has been minimised. The principle of sanctity of contract preserves commercial certainty, and allows for commercial transactions to proceed smoothly. This is in contrast to the vagaries brought about by arguments of fairness. This article examines the doctrine of unilateral mistake as considered in Chwee Kin Keong v Pte Ltd. It argues that the result there is both fair and economically grounded. It then explores and proposes an alternative view of contract — one that sees fairness intertwined comfortably with and supporting commerce, in contrast to the positivist approach which draws a sharp distinction between law and seemingly extra-legal factors.

I. Introduction

1 The strength of English contract law is that it promotes commercial certainty and predictability, which in turn allow commerce to go on smoothly. However, contract law is not only about the certainty and smooth progression of commercial transactions. It is also about fairness. The role of fairness, however, is generally understated, largely because it is hard to articulate a sense of fairness with a degree of rigour. As a result, the sanctity of contract has often been treated as the root foundation of classical contract law.

2 In the height of the laissez-faire philosophy of classical contract law in the 19th century, judges took the view that the object of the law was to allow people to conduct their commercial affairs as they thought best, with as little interference from the government as possible. This meant upholding the sanctity of contract, often to the exclusion of other

considerations. In general, contract law was not concerned with the fairness or justice of the outcome. It was not that the judges were indifferent to public interest. Rather, they thought that in nearly all cases, it was in the public interest to enforce private contracts, and indeed, it was widely thought that this was proved by fundamental economic principles.

3 The lasissez-faire philosophy of classical contract law weakened in the late 19th to the late 20th century. This was due to the emergence of standard-form contracts, the growth of consumer protection and a declining importance attached to free choice. The last two decades, however, have seen a resurgence of classical contract law. Free-market principles have dominated economic thinking, and economic arguments increasingly influence political decisions on whether to interfere with the market place.1

4 This paper examines the doctrine of unilateral mistake as applied in the High Court decision of Chwee Kin Keong v Pte Ltd,2 from the perspective of economics. It argues that the decision is both fair and economically grounded, and proposes an alternative view to that offered by classical contract law — one that sees fairness intertwined comfortably with and supporting commerce, in contrast to the positivist approach which draws a sharp distinction between law and seemingly extra-legal factors.

II. The facts in Digilandmall

5 In the early hours of Monday morning on 13 January 2003, six friends (the plaintiffs) placed orders on the website of Pte Ltd (the defendant) for 1,606 Hewlett Packard HPC 9660A Colour LaserJet printers (“the laser printers”). The posted price was $66 each. The defendant had, on 8 January 2003, mistakenly posted this price. Prior to the mistake, the posted price was $3,854.

6 The defendant is a company that sells information technology (“IT”) products over the Internet to consumers. As part of its business, it operates a website owned by Hewlett Packard (“HP”) at (“HP website”), where only HP products are sold. The defendant also sells HP products on its own website at (“Digilandmall website”). A related website (“the Digiland commerce website”) for corporate clients and re-sellers is owned and operated by a related entity, Digiland International Limited (“DIL”).

7 The mistake arose from a training session conducted by DIL employees at the defendant’s premises between 3.00pm to 4.00pm on Wednesday, 8 January 2003. The training included hands-on training with a new template for a “Price Mass Upload” function. This new template allowed instantaneous price changes to be reflected in the relevant Internet web pages. A real product number “HPC 9660A” was inserted into the template as the prototype for which fictional prices were inserted. At 3.36pm, one of DIL’s employees accidentally uploaded the contents of the training template onto the Digiland commerce website operated by DIL, instead of the test website allocated for the training. The programme trigger on that website automatically and instantaneously inserted similar content onto all three websites.

8 As a result of the accident, the description of the laser printers on the websites was replaced by the numeral “55”. The numerals “66” replaced the original price of the laser printer of “$3,584”, and the numeral “77” replaced the original corporate price of the laser printer of “$3,448”.

9 Between 8 and 13 January 2003, 784 individuals placed orders for 4,086 printers. The six plaintiffs accounted for orders for 1,606 printers. The plaintiffs’ orders were processed by the defendant’s automated system and confirmation notes were automatically despatched to the plaintiffs within a few minutes. Each of the automated confirmatory e-mail responses carried, under the caption of “Availability [of the product]”, the notation “call to enquire”.

10 When the defendant learnt of the error, it immediately removed the advertisement and informed all who placed orders that the price posting was an unfortunate error and it would therefore not be meeting those orders. The plaintiffs sought to enforce the transaction. They asserted that they did not think that the website prices were mistakenly posted and maintained that if the defendant were allowed to renege on the posted price, uncertainty would prevail in the commercial world and

particularly in Internet transactions. If they succeeded in their action, they would have spent only $105,996 to acquire laser printers with a market value of about $6,189,524. These were the facts in the High Court case of Digilandmall.

III. The decision of the High Court in Digilandmall

11 The learned judge, V K Rajah JC (as he then was), ruled that contracts had been concluded between the plaintiffs and defendant. These contracts were, however, voided by the doctrine of unilateral mistake. In coming to this conclusion, the learned judge addressed several contract law issues, of which five holdings in particular will be highlighted here.

12 First, the basic principles of contract law continue to prevail in contracts made on the Internet. However, not all principles will or can apply in the same manner that they apply to traditional paper-based and oral contracts. It was noted by the learned judge that while the Electronics Transaction Act (Cap 88, 1999 Rev Ed) (“ETA”) places Internet contractual dealings on a firmer footing, it is essentially permissive. The law of agency and that pertaining to the formation of contracts are expressly recognised in s 13(8) of the ETA as continuing to apply to electronic transactions. Thus, principles of contract formation, consideration, terms and conditions, choice of law and jurisdictional issues need to be examined.3

13 Second, on the facts, contracts were concluded. The learned judge rejected the defendant’s suggestion that no contracts had been formed since there was a notation “call to enquire” in the e-mail response of the defendant. The defendant contended that this notation created a condition precedent. The learned judge held that the e-mail replies from the defendant had all the characteristics of an unequivocal acceptance. The caption “Successful Purchase Confirmation from HP online” in each of the e-mails said it all. The text of the e-mail further reinforced the point. The fact that the acceptance was automatically generated by computer software could not in any manner exonerate the defendant from responsibility. It was, after all, the defendant’s computer system and the defendant had programmed that software. Furthermore, from the evidence, it was clear that the defendant had intentionally put in the

words “call to enquire” instead of the phrase “subject to availability”, and that it had done so to solicit more business.4

14 Third, the learned judge held that constructive knowledge of the mistake was sufficient for unilateral mistake to be operative. While the learned judge observed that Chitty on Contracts noted that it was not clear whether actual knowledge was required to found unilateral mistake, or if...

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