Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)-1
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that mistake is not operative here. Only exceptionally would a duty to inform be imposed as a result of a general clause, as opposed to specific provisions contained in legislation. Three factual interpretations were feasible. It was a deliberate choice to leave a margin of factual ambiguity in the cases at times, since all cases that come to court inevitably contain a degree of factual ambiguity and the interest of this study has been to reveal this process, and to examine how national reporters interpret the case.
More precisely, if the sale was made by the company, only three legal systems would award a remedy (Norway and Portugal under specific company law provisions; Germany under the culpa in contrahendo doctrine). If the sale was made by a director of the company, no remedy would be granted. If the sale was made by a financial agent, three legal systems might give a remedy (France, Italy and Norway), although this interpretation was admittedly strained, the result rather of an isolated instance than a general rule.
To conclude, the underlying explanation for this solution lies in economic considerations that condition the functioning of the stock market.
Case 8: Estella v. Uriah Heep
European legislation on long-distance and credit sales results in a unanimous solution in favour of the buyer invoking her rights to cancel the contract.
Under defects of consent or remedies for breach of consent only a minority were prepared to grant a remedy. Five legal systems (Austria, Germany -- subject to reservation, Greece, the Netherlands and Portugal) admit an operative mistake. Four (Austria, Belgium, Germany and Greece) would admit a breach of the duty to inform. Three (Austria, Belgium and Greece) would give a remedy under the action for a guarantee against hidden defects.
The main point of this case is to expand our enquiry into the overlap between remedies under leges speciales and those for defects of consent. The result of this case, as already mentioned, is that it appears that the consumer will have less protection than before the introduction of consumer protection laws. This conclusion is not only startling but also a cause for concern. Is European harmonisation working? On one level, the answer is positive since as seen above harmony has been achieved. On another, if the end-goal of such legislation is to protect consumers,
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the reply is less certain. The hypothesis that a consumer fails to act within the cancellation time limits is more than plausible.
Case 9: Nell v. Scrooge Bank
(i)Austrian, Dutch, English, German, Greek, Italian, Norwegian and Scottish law admitted that the contract can be annulled, but Germany, Greece and Norway rendered annulment ineffective by the requirement to pay negative interest damages. In practice, then, a satisfactory remedy would be available in five legal systems.
(ii)The solutions given to this case break down any preconceptions leaning in favour of the idea that certain legal systems are generally more protective than others. Moreover, the perennial difficulty of how to catch the fraud of a third party to the contract remains unanswered by the majority of countries. Three important and highly instructive exceptions exist.11 The English solution requires the lender to tell the guarantor of the extent of her liability as a surety, to warn her of the risk she is running and to take independent legal advice.12 This cannot be characterised as a duty to inform although it serves a similar purpose. The solution provided by the Netherlands is even more progressive since it puts the onus on the lender to make enquiries; such an obligation arises under general provisions relating to defects of consent; the final exception, under Austrian law, provides for the same obligation incumbent on the lender as a result of a lex specialis.
It appears that this case would not give rise to a remedy if the provisions concerning mistake in the PECL were applied. Fraud cannot be invoked because of the third party question discussed above. In relation to discussions about a European Civil Code the result of this case may sound a note of warning. If it is suggested that principles for the Code should be determined according to the positive law of the majority of member states, there is a flaw. This case shows that this criterion is not the only guiding factor for law-making, since it is quantitative and not qualitative. To put it another way, will adopting the majority solution produce ‘better law’ here?
11Those provided by England and the Netherlands will be the object of more general concluding observations below.
12See the English report. It has recently been submitted in The Royal Bank of Scotland v. Etridge (No. 2) (2001) UKHL 44 that ‘the protection needed by wives differs from, and goes beyond, the disclosure of information’, per Lord Nicholls at para. 81.
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Case 10: Zachary
A variety of reactions to double insurance can be seen. The Netherlands and Portugal consider double insurance invalid. Austria and Belgium allow the insured to cancel or invalidate the insurance policy, if made with a different insurer. Five legal systems considered that the contract could be annulled on the ground of mistake (Austria, Greece and Italy), the lack of basis of the transaction (Germany) or perhaps for absence of cause (France). England, France, Ireland, Norway, Scotland and Spain consider that double insurance is valid. Several reporters have admitted more than one hypothesis. To summarise: the majority view is not clear and will depend on whether the French hypothesis of absence de cause is recognised or not.
No doubt economic considerations, namely the cost of making enquiries, helps to explain the solution: only Germany as an outstanding exception suggested that an insurer should be obliged to inform the insured about the existence of the double insurance policy in cases where the insurance is effected with the same insurer. Generally, legal systems providing protection for the insured party have chosen to do so through other means. This case confirms two recurrent themes observed throughout this study (see below in general conclusion). First, that the duty to inform is not always efficient (this may explain why certain legal systems do not favour it). Secondly, that by imposing the duty to inform, the obliged party has a reinforced standard of behaviour. One way the law can attempt to raise behavioural norms is to deem that the party under the duty to inform has knowledge, i.e. possesses the relevant information. Advancing one step further implies that this information must be disclosed to the other party.
Case 11: Monstrous Inventions Ltd v. Mary Shelley
A majority of nine legal systems did not allow the company to annul the contract. Only Austria was prepared to admit a mistake, and Greece and the Netherlands relied on the absence of the basis of the transaction and an unforeseen change of circumstances. As for the duty to inform, only Norway (and perhaps the Netherlands) accepted that the employee’s behaviour amounted to a breach of good faith and honest behaviour.
This case illustrates the limits of the duty to inform when the information is personal in content (for the person possessing it). The law does not expect people to behave against their own self-interest, absent
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fraud or bad faith. This shows the very open-ended norm of good faith,13 which some would argue renders it somewhat unhelpful as a guideline.
Case 12: Lady Windermere v. Angel
This case has produced quasi-unanimity since nearly all countries agreed that the gift could be annulled or rectified for mistake. A number of explanations may help. The mistake in question relates to a mistake in terms. The transaction under consideration is a gift, the donee is generally considered less worthy of protection since he has given no value. In certain legal systems the absence of reliance by the donee is emphasised, thus suggesting that, a contrario, if the donee had relied on the gift, this would be sufficient to disregard the nature of the voluntary transaction and provide a good reason for protection. Other legal systems focusing on the behaviour of the parties, note that the donee knew or should have known that the gift was not meant for him. Economic and moral considerations may also be invoked in order to explain the solution of this case.
Four observations can be inferred from these empirical results. First, in only two cases out of twelve was there unanimity over the solution and the legal techniques used to achieve the solution. Of these two, Case 3 was based on fraud and Case 8 on the basis of harmonising European legislation. As already noted a majority agreement on the solution of the cases has been identified in eleven out of twelve cases. Secondly, the consensus on result (be it in favour of or against a remedy being granted) is qualified by a major reservation: an incredible diversity and richness of legal concepts have been employed to reach each solution. This is of course unsurprising and can be resumed by stating the obvious: there are many different ways of looking at the same object. Thirdly, mistake is used decreasingly, it is becoming a subsidiary remedy in the face of leges speciales or is being taken over, to a varying extent, by the duty to inform. Conversely, the duty to inform is on the increase, either as a result of leges speciales or as a result of case law constructions.
Finally, at the outset, it was stated that one of the aims of this study was to investigate the accuracy of preconceptions about the dividing line between civil law and common law countries. This aim has been achieved as this study has demonstrated that dividing lines exist but they do not always fall where expected. It is submitted that the legal
13R. Zimmerman and S. Whittaker (eds.), Good Faith in European Contract Law (Cambridge, 2000), pp. 30--2.
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concepts are insufficient by themselves to explain the similarities and differences. We shall therefore attempt to explain the dividing lines by examining the underlying rationales of the law (or of the national laws).
Explaining the dividing lines: underlying rationales
This study has demonstrated that the legal systems considered each have a different conception of mistake. Four main features can be extracted from each different viewpoint. These focus points represent each law’s emphasis or priority in terms of how mistake is envisaged. The first points to the role of causation -- how was the mistake caused? This viewpoint looks at the behaviour of the non-mistaken party. The second examines the question of fault -- whose fault was it that the mistake occurred? Looked at from this angle, the law tends to concentrate rather on the mistaken party’s behaviour (was it excusable or not?). The third concentrates on the knowledge of the parties; this viewpoint looks at both parties’ behaviour and state of mind and also focuses on the importance to the parties of certain information about the contract’s content. The fourth examines the distribution of risks. The parties’ behaviour is no longer relevant, it is their economic choice that matters. It is submitted that the duty to provide information (informational power) is a key factor to understanding these viewpoints and may explain why certain countries admit mistake more easily than others. In order to confirm this hypothesis, an attempt to identify the underlying rationales will be made which will allow us to find a place for the duty to inform.
In order to identify the underlying rationales of mistake, a conceptual distinction proposed by Zweigert and Kotz will be adopted: that of focusing on the mistake itself and that of emphasising how the mistake was caused.14 The former will be called a static view of mistake; the latter dynamic since the focus is on the way in which the mistake arose. It may be that these two viewpoints represent two extremes. It may also be true that the tendency to adopt a static view is evolving towards a more dynamic view of mistake. Starting from the static view of mistake, four main underlying tendencies will be further outlined, some of which may overlap and illustrate a progression, a change in attitude towards dynamic mistake.
14 Zweigert and Kötz, Introduction to Comparative Law, pp. 423 ff.
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Underlying tendencies in the static view of mistake
At the outset, it is possible to identify a mistake that occurs before a party’s intention has been fully formulated. If such a mistake were recognised it could be explained as an extreme form of intention-based protection. In this instance party autonomy is exaggerated, since protection is given to what is in a party’s mind, before the mistake has been declared (externalised). It is perhaps for this reason, as well as for evidential ones, that this can be qualified as the weakest type of mistake that is the least justified in being a ground for annulment. As outlined above, no system qualifies such a mistake as operative.
Moving on from a mistake in the party’s mind, the next stage is to identify mistakes made that affect a party’s intention. This shall be called intention-based protection. Whether the mistake is identified in the declaration of intent as in German law (§ 119 BGB) or as vitiating the party’s will, as in French law (art. 1110 Code Civil), the mistaken party’s interests are prominent. This is the best example of static mistake since the mistake itself is emphasised and little attention is paid to how it was caused. The importance of the parties’ intentions and the will theory justify annulling the contract on this ground since to be properly bound a party’s intention or will must be clear and free from defects. The emphasis is quite clearly on the mistaken party, to whom the law gives priority.
This viewpoint nevertheless admits a variety of degrees. French law probably provides the most extreme version since the mere fact of a mistake can suffice to annul the contract, and the interests of the nonmistaken party are overridden. German law will annul under § 119 BGB but § 122 BGB puts a limit on annulment, which is not, therefore, absolute. As already seen, the same is also true of Greek and Portuguese law. The qualification is that the mistaken party must compensate the negative interest suffered by the non-mistaken party. It may be that German law is thus a half-way house or a transition towards the next category.
Proceeding from an enquiry that concentrates on the mistaken party, the next tendency is to seek to protect the other (non-mistaken) party’s reliance. This will be called reliance-based protection. Here more emphasis is given to the position of the non-mistaken party in the sense that annulment will be given at the cost of compensating the non-mistaken party and his reliance on the contract’s validity. It may be misleading to term this reliance-based15 since we are also looking at the question
15 In other words, the term reliance is used sensu lato in this context.
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of whether it is unfair to dash the non-mistaken party’s expectations of the contract’s fulfilment.
As stated before, German law creates a nuance between intentionbased and reliance-based protection since a mistaken party may have to compensate the non-mistaken party. Austrian law goes one step further towards what can be clearly termed a reliance-based attitude since it examines to what extent the non-mistaken party is worthy of protection. Protecting the non-mistaken party’s reliance may even be a reason for refusing the claim for annulment (§ 871 ABGB). If, for example, the non-mistaken party has acted in reliance on the contract, e.g. by incurring expenses, this will prevent the contract from being annulled. Austrian law protects the non-mistaken party more than German law in this respect. However, the non-mistaken party will not be protected if no reliance damages have actually been suffered or if the non-mistaken party caused or knew of the mistake. Here a new element is introduced, that of the circumstances of the occurrence of the mistake -- a focus on the causing of the mistake. This element is to some extent shared by the common law’s attitude to mistake.16
At the opposite extreme is the view which prefers that security of transactions be upheld over and above annulment on the basis of mistake (referred to as ‘commerce-based protection’). This underlying rationale cares less for the mistaken and non-mistaken party and concentrates on the overall effect on the market of annulling the contract, not from one or both of the contracting parties’ points of view. According to the common law’s point of view, only a factual fundamental common mistake (shared by the parties) will annul the contract since the danger of impugning transactions and disturbing the market balance prevails. This extreme position does not give preferential treatment either to the mistaken or non-mistaken party. Arguably the emphasis is different for an additional reason, that of analysing the question in terms of the risks to be borne by each party. Taking into account the question of risks is a sign of a more general shift in contractual values and one which is increasingly recognised by legal systems (but not all of them) away from the contract based on the will theory.
A movement of change: dynamic mistake
Although it is more common to recognise that the English law of mistake takes into account the way in which the mistake was caused,17 this is
16 See (b) below. 17 Zweigert and Kötz, Introduction to Comparative Law, p. 420.
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true of other national laws as well. Although some authors relegate the narrow version of English mistake to what we have called static mistake and misrepresentation to the dynamic part of mistake, this may not be the only place where dynamic mistake can be identified. In order to explain where dynamic mistake can be found in other legal systems, it may be helpful to isolate some uses of terminology that have the effect of bringing the contrast between static and dynamic mistake into the open. So far, we have chosen to denominate the parties as the ‘mistaken party’ and the ‘non-mistaken party’. This is no accident, since identifying the mistaken party as promisor or promisee does not really help matters. If we look at § 119 BGB in German law, for example, the law of mistake speaks of the mistake of the person making the declaration, but does not differentiate as to whether the declarer is the promisor or promisee since the term ‘declaration of intent’ covers a wide variety of juridical acts.18 Likewise, in French law, since the accent is on the mistaken party, it is important to notice that as a mistaken party the claimant may be either the promisor19 or the promisee.20 In any event, neither French law nor German law looks under the law of mistake to see how (i.e. by whom, in what circumstances) the mistake was caused. It follows logically that unilateral mistakes will be admitted.
It has already been suggested that the emphasis on the causing of the mistake will, to some extent, be linked to what sort of mistakes (made by one or both of the parties) will be recognised. In contrast to French and German law, Austrian law, for example, does look at whether the non-mistaken party caused the mistake (or should have known of it) in determining whether the non-mistaken party’s interests should counterbalance or override those of the mistaken party (§ 871 ABGB). Under this interpretation, either mistaken party could claim to annul the contract for its mistake, although both of them may be protected for their reliance on the validity of the contract.21 A similar emphasis on whether the non-mistaken party knew or should have known of the mistake is made under Italian, Portuguese and Dutch law.22
18See further the explanation given in Chapter 2, pp. 60--61.
19The legendary example is that of the affaire Poussin -- the sellers, as promisors, were entitled to annul the sale in which they were mistaken about the subject matter of their sale. See French report, Case 1.
20Another standard example would be of the buyer (promisee) who annuls the contract due to his mistake as to the object of the sale.
21This opinion is subject to criticism from scholars, for a new view that common mistake should be dealt with under, and not in addition to, the provisions of § 871, see Rummel Koziol and Honzell (see the Austrian report in Case 1).
22See General Introduction, p. 21.
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At the other end of the spectrum, in legal systems where shared mistakes are expressly recognised, i.e. under English, Scots and Irish law, it is somewhat inevitable that the law takes into account the way in which the mistake was caused and not only in the realm of a misrepresentationinduced mistake. As an illustration, the Court of Appeal has held that a common mistake of fact is required to annul a contract.23 However, a qualification must be made: a shared or common mistake will only be an illustration of dynamic mistake if the mistake has been caused by one of the contracting parties (as opposed to a third party). One of the questions raised by our enquiry is to examine whether looking at how mistake is caused is a trend that is being increasingly used.
One of the results of this study has shown that the law is putting more emphasis on the parties’ behaviour. This emphasis on the parties’ behaviour has also been called an awareness or a raising of standards of contractual behaviour more generally. This may be a natural or at least predictable consequence arising from the move away from intentionbased protection (denial of the will theory as the basis of contract). This shift is represented by the two focus points of causation and fault since whether or not some legal systems admit mistake depends on one of these two factors or sometimes both. We have ascertained that some legal systems focus on how the mistake was caused by the nonmistaken party, i.e. by the other party’s statements or silence;24 others consider whether the mistake was caused by the mistaken party itself, or to put it another way, was it the mistaken party’s fault? This viewpoint is more often framed in terms of the excusability or inexcusability of the mistake.
This change in focus once again explains the initial choice to examine mistake and the duty to inform concurrently, as it is believed that the
23The Great Peace (2002). See Chapter 3, pp. 79--85.
24It is of course debatable whether silence, i.e. non-disclosure can cause a mistake in the same way as a positive statement, i.e. disclosure may cause a mistake, as in the case of misrepresentation under English, Scots and Irish law. John Cartwright has expressed his scepticism to me but I consider that an omission can cause a mistake. Imagine the case where the failure to provide information leads to the mistake (see Case 6 on the sale of the computer and the salesman’s silence as to the existence of the maintenance contract). Is it misleading to say that the failure to provide information caused the mistaken party’s mistake? If the argument is reversed, the chain of causation may be proven. If the information had been provided (that the computer sale did not include a maintenance contract) then the mistake would not have been made. It was therefore caused by the omission to provide information along the lines of a ‘but for’ criterion of causation.
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emergence of the duty to inform may be a decisive factor in the change. The effect of the change can be summarised as a move from intentionbased protection where the emphasis is on the consent of the party to the contract to reliance-based protection where the emphasis is on the content of the contract. The results of this study have demonstrated this change of perspective yet one rhetorical question remains: is the relationship between static and dynamic mistake one of cause and effect? Is the fact of attributing knowledge and consequent risks to the parties a cause of the change towards a dynamic mistake or is it the effect of such a change?
The PECL provisions on mistake are in this respect revealing. Article 4:103 clearly puts the emphasis on the information provided by the contracting parties and the knowledge of the parties of the importance of this information.
PECL 4:103 MISTAKE
1.A party may avoid a contract for mistake of fact or law existing when the contract was concluded if:
a)(i) the mistake was caused by information given by the other party; or
(ii)the other party knew or ought to have known of the mistake and it was contrary to good faith and fair dealing to leave the mistaken party in error; or
(iii)the other party made the same mistake, and
b)the other party knew or ought to have known that the mistaken party, had it known the truth, would not have entered the contract or would have done so only on fundamentally different terms.
2.However a party may not avoid the contract if:
a)in the circumstances, the mistake was inexcusable, or
b)the risk of the mistake was assumed, or in the circumstance should be borne, by it.
This emphasis is outlined in the three alternative conditions for mistake to be operative as follows: (i) the causation criterion (did the other party cause the mistake?); or (ii) the knowledge criterion (did the other party know of the mistake or should he have known?) linked to the parties’ behaviour interpreted through good faith and fair dealing; or (iii) the fact that the mistake is made by both parties. One of these conditions is cumulated with a further knowledge criterion by the non-mistaken party of the significance of the mistake. Furthermore, a claim to avoid for mistake is barred either by the fault of the mistaken party or when the risk of the mistake was assumed or should have been assumed in the circumstances.