VITIATING FACTORS IN CONTRACT LAW — THE INTERACTION OF THEORY AND PRACTICE

Citation(1998) 10 SAcLJ 1
Date01 December 1998
Published date01 December 1998
I INTRODUCTION
The Central Tension

The law constantly oscillates between technicality on the one hand and broader arguments centring on fairness on the other. The apparent focus is on the former, and not without good reason. I have ventured to suggest elsewhere that the English law of contract is, in the main, premised on a positivist approach, viz, an approach that draws a conceptual distinction between the law on the one hand and morality (as well as extralegal factors) on the other.1 And, insofar as English law still constitutes the bedrock of Singapore law (particularly in the context of contract law),2 one may reasonably assume that this is, in the main, the approach adopted in Singapore as well. At least one of the underlying premises for such an approach is, it is suggested, the implicit assumption that anything outside strict legal analysis (for example, the concern with fairness) is necessarily subjective and would therefore lead to excessive uncertainty — a result at least perceived to be wholly at variance with the needs of commercial practice as encompassed (in part at least) within the idea of freedom as well as sanctity of contract. Concerns of fairness cannot, however, be ignored, if nothing else, because there is also the countervailing need to perceive the law as being fair and just. Hence, the oscillation referred to at the outset of this article.

Notwithstanding the oscillation just mentioned, it is suggested, insofar as the law of contract is concerned, that there will be a tendency towards one extreme or the other, depending on the particular area concerned. It is further suggested that the law relating to vitiating factors tends towards the attainment of fairness. Indeed, by their very nature and function,

vitiating factors, if successfully pleaded, actually unravel the agreement at hand, thus militating against the idea of sanctity of contract referred to in the preceding paragraph. In order, however, to justify such interference with a contract otherwise validly concluded, the law has necessarily had to formulate grounds premised on fairness. It might also be mentioned that the vitiating factors referred to here have traditionally encompassed the doctrines of mistake; misrepresentation; economic duress, undue influence and unconscionability; as well as illegality.3 Two important general points should also be made at this juncture.

First, a well-entrenched distinction has been drawn, in both the case law4 as well as the academic literature,5 between procedural fairness on the one hand and substantive fairness on the other, ie, fairness of the procedures and negotiations leading to the formation of the contract, as opposed to the fairness of the substantive result, viz the resulting terms of the contract itself. Professor Atiyah has, however, eloquently and perceptively demonstrated that this distinction can be rather artificial since both procedural as well as substantive fairness often impact on, as well as interact with, each other.6 It is, in fact, suggested that this distinction is prompted, in part at least, by the very same fears referred to earlier in this piece, and the attendant need to achieve certainty and predictability, particularly in commercial transactions. Looked at in this light, the distinction has more than a touch of positivist influence about it, despite adopting the general rubric of fairness. It should be mentioned that this “in-between” idea has its analogues in broader political theory as well.7 It will, however, be suggested (in varying degrees throughout this piece) that the implicit enterprise underlying the operation of the various vitiating factors has in fact centred on the idea of substantive justice instead.

Secondly, just as the line between procedural and substantive fairness is not often clear, so the same may be said of the line between technicality on the one hand and fairness on the other. In other words, the argument made thus far is only a relative one: the law relating to vitiating factors in contract law, whilst tending toward the side of fairness in both nature as well as function, is nevertheless not free from technical difficulties and even distinctions. It remains, however, true that the very nature of vitiating factors nevertheless unravels, in appropriate instances, the idea of sanctity of contract and, in the process, engenders uncertainty as well; to this extent, and on this very general level, the positivist ambitions of the law of contract are indeed clearly undermined.

The Plan of this Article

Given the tendency of the various vitiating factors in the law of contract towards the attainment of fairness (more often than not, in the substantive sense), the present article attempts to demonstrate how the law has in fact worked towards this aim. This necessitates, in turn, a consideration of at least two central theoretical or conceptual themes underlying the law itself. And it is an understanding of these themes that will enable us not only to understand better how the law came to be the way it is but also to enable us to (simultaneously) better craft arguments with respect to the various vitiating factors as a consequence. Such an understanding will also constitute the platform from which various pathways to reform will be canvassed. To this end, the present piece commences with a statement of the central theoretical or conceptual themes, after which specific areas of each vitiating factor are briefly discussed in order to illustrate these themes, simultaneously drawing out (it is hoped) the various practical implications just mentioned. The focus will be on relatively recent developments or, at least, on issues that are relatively novel simply by virtue of their not having been discussed much in either the case law or literature; it should be mentioned, however, that this latter set of issues has nevertheless been chosen for their potential significance to both theoretical analysis as well as practical application. It is also hoped, in this regard, that the specific discussions and analyses will also prove to be of some informative value to the reader. As already alluded to above, I will also be focusing on various pathways to reform as and when appropriate. A brief conclusion brings the present article to a close.

II THE CENTRAL THEORETICAL THEMES STATED

The first central theme or strand is also, it is suggested, the most important: that although the courts have sought to achieve fairness through the application of the various vitiating factors, they have nevertheless been conscious of the countervailing need for certainty and predictability, particularly in commercial transactions, and that this has given rise (in most instances) to line-drawing. Such line-drawing, whilst practically

necessary, does not, it will be suggested, always result in a satisfactory framework. It will be further suggested, however, that in extreme situations where gross unfairness would result, the courts have nevertheless opted in favour of decisions that, arguably at least, go beyond what the existing framework would appear to allow. The general line of argument proffered thus far would, if accepted, have quite significant implications in terms of practical argument.

The second central strand is a related one: that it is very helpful to be aware of substantive similarities between and amongst doctrines8and even between and amongst sub-categories of the same doctrine. This strand is especially relevant in the context of reform, as it will (more often than not) enable either the courts and/or legislature to both simplify as well as reform relatively complex areas of the law.

There are, it should be mentioned, numerous other theoretical applications as well as implications, some of which will be evident in the discussion and analysis that follow. However, they are of a rather more specific cast and, for this very reason, may be of merely limited application to the particular category or sub-category considered. It remains to be observed that the two central themes or strands briefly mentioned in this Part are of more wide-ranging applicability. It is now proposed that we turn to a consideration of various aspects of the various vitiating factors in order to elaborate upon as well as illustrate these (as well as other more specific) strands.

III MISTAKE9

There are relatively few reported cases on the law of mistake. Part of the reason for this may lie in the perceived complexity of this particular vitiating factor that, in fact, comprises quite a number of major sub-categories. As already mentioned, not every sub-category will be discussed in the present article, although the more significant ones will not escape our attention.

Common Mistake
(1) At Common Law

It was once thought that this particular category of mistake was ambiguous at best, non-existent (in practice at least) at worst, the then leading House

of Lords decision of Bell v Lever Brothers Ltd10 casting, as it were, more apparent darkness than light. It was, as I have sought to argue elsewhere, possible, nevertheless, to make out a very persuasive case, on the language of the judgment of two Law Lords in that case,11 for an independent doctrine of common mistake at common law.12 But a leading textbook nevertheless argued further that in any event, if the doctrine was not successfully pleaded on the facts of Bell v Lever Brothers Ltd, it was not very likely to be successfully pleaded in any other situation.13

However, Steyn J (as he then was), in the now leading (English) decision of Associated Japanese Bank v Credit du Nord,14 emphatically held that there was indeed an independent doctrine of common mistake at common law. In that case, one Bennett concluded a sale and leaseback transaction of four micro textile compression packaging machines with Associated Japanese Bank (International) Ltd (AJB) who were the plaintiffs. This transaction (comprising two...

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