Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)

order to draw a reliable map of the law of Europe’.60 Its method aims to be descriptive and critically neutral; there is no intention of striving for uniformity or even harmonisation. Likewise at the other extreme, although recognising that cultural diversity is an asset, no desire to be preservationist or chauvinistically conservative is present.61 Even within the project, a certain degree of pluralism of opinion is both recognised and welcomed.62 The aim of this work is to identify similarities and differences as induced from the practical appplication of legal rules in relation to fact-specific situations, as already stated; this enterprise is relatively neutral, at first sight. Consequently, our enquiry attempts to trace the patterns identifiable in mistake, fraud and duties to inform in the legal systems examined. Our enquiry remains sceptical both as to the significance of the common core and also as to the neutrality of its approach.63 To put it simply, even if we attempt to be neutral, experience has shown that this is not entirely possible. In a sense, this does not matter as long as one is under no illusions. Lastly, our research aims at including in the description of the lie of the land a critical analytical explanation (where possible) of why we have found the picture shown. It is perhaps this enquiry as to underlying values, outlined in the comparative observations at the end of each case, which may fuel scepticism about neutrality. This is somewhat inevitable since a comparative exercise that merely describes will no doubt be insufficient and an attempt to explain slides into an exercise which cannot be wholly neutral. With that in mind, our comparative aim is to compare and contrast,64 for the purposes of increasing our awareness. This can only occur through practice.

To summarise, this study aims therefore to test whether a theoretical shift from contractual validity (a procedural question) to contractual fairness (a substantive question) is taking place in European contract

60For a recent restatement of the project’s aims; see Bussani and Mauro (eds.), The Common Core of European Private Law, pp. 1--9.

61On culturalism and chauvinism, see the debates at the Amsterdam conference on European critical legal theory in Eur. Rev. Priv. Law 1 (2002).

62Bussani and Mattei, The Common Core of European Private Law, pp. 2--3.

63For a discussion about what he calls ‘methodological eclecticism and political neutrality’, see D. Kennedy, ‘The Methods and Politics of Comparative Law’ in

M. Bussani and U. Mattei (eds.), The Common Core of European Private Law, pp. 131--207; R. Sefton-Green, ‘Le défi d’un droit commun des obligations’ in M. Delmas-Marty, H. Muir Watt and H. Ruiz-Fabri (eds.) Variations autour d’un droit commun (Paris, 2002), pp. 443 ff. See also our comparative conclusions below.

64See R. Sefton-Green, ‘Compare and Contrast: Monstre à deux tˆetes’ (2002) RIDComp 85 ff.

law. It is submitted that this shift can be demonstrated, inter alia, by the emergence and increasing emphasis given to duties to inform. In order to investigate the lines of enquiry outlined above, three guidelines should be borne in mind:

i.Is the law focusing on the standards of behaviour expected of contracting parties rather than on the parties’ consent?

ii.Is it true to contend that the content of the contract is scrutinised according to objective standards?

iii.Is the process of concluding the contract (i.e. the precontractual phase) taking precedence over the consent of the parties?

In order to understand what is meant by mistake, fraud and the duty to inform in this study, it may be helpful to identify and describe the conceptual classifications present in the national laws, which may appear more radically divergent than they actually are in practice. For this purpose it will be our aim to see whether some preconceptions about differences and similarities (civil law versus common law?) can be knocked down.65

Identifying the heart of the matter

The heart of this study needs to be identified; what is meant by mistake, fraud and duties to inform? What does European contract law mean? Starting with the second question, the thirteen European countries whose laws have been examined are the following: Austria, Belgium, England, France, Germany, Greece, Ireland, Italy, The Netherlands, Norway, Portugal, Spain and Scotland. The Norwegian report includes an overview of Swedish and Danish law as well, and for comparative purposes reference is sometimes made to Scandinavia. The reports of each country are presented in alphabetical order. Our aim is to carry out an inductive empirical enquiry. In order for the reader to familiarise himself with the three main concepts that form the heart of the enquiry, these are introduced briefly.

65In this respect we should point out that the civil law/common law divide is not an assumption relied on in this study. Quite the reverse. Nevertheless, the labels ‘civil law’ and ‘common law’ are used sometimes for the sake of convenience. Using such labels has often led to a realisation of how false the assumption is, which has led to an attempt to eliminate them as far as possible. Furthermore, for those versed in comparative legal study, it is apparent that the very terms are devoid of significance. What is a ‘civil law’ country? A country that has a codified legal system perhaps. Within such countries the term ‘civil law’ means something quite different since civil law is opposed to commercial law or some other branch of the codified system.

Mistake

To understand the contours and the colours of mistake some of the central issues raised by the doctrine of mistake, which need to be examined in this enquiry and have been implemented in the cases, are underlined. No attempt to define mistake will be made, since each national reporter in Case 1 has done this.

What kinds of mistake are operative?

The classification of mistake as fundamental

France, Belgium, Spain, Italy, The Netherlands and Portugal deriving mistake from the Roman law conceptions of substantia and qualitas, present an apparent similarity of approach. Moving from the mere textual definition, requiring mistake to pertain to the essence or the substance of the thing or the person, an extension has been made by case law to include essential or substantial qualities of the thing or the person. German law makes a further distinction since § 119 BGB is divided into two definitions: the first clause covers the so-called ‘mistake in declaration or expression’ as to meaning or to content, comparable to the Dutch ‘mistake improper’ (oneigenlijke dwaling), the second ‘mistake as to subject matter’ or error in substantiali qualitate.66 Austrian law also frames mistake about the content of the declaration relating to an essential thing. Greek law distinguishes two instances of fundamental mistake:

(i) mistake as to the declaration (art. 140 AK) which is due to a discrepancy between the will and the declaration and (ii) mistake as to the qualities of a person or thing (art. 142 AK). Norwegian law specifically governs only a ‘mistake in transaction’.67 Scots law contains a complex categorisation of mistake.68 In order to harmonise this idea, and avoid an excessive variation of vocabulary, we have agreed to call such a mistake fundamental.

Unilateral, mutual and shared mistakes

In England, Ireland and Scotland, the main categories of mistake are distinguished according to whether the mistake is unilateral69 (made by

66Of course, these two subsections represent the tension between the theory of declaration (Erklärungstheorie) and the will theory (Willenstheorie) respectively. The same tension is found in § 871 ABGB.

67Section 32, The Norwegian Contract Act, see Case 12 for an example.

68See Scots report, Case 1 where the conditions are set out in full.

69Cartwright, Unequal Bargaining, p. 4, explains this as where the parties are at cross-purposes.

one party only), mutual70 (both parties make a mistake but not the same mistake) and shared or common71 (both parties make the same mistake). At first glance, this conceptual classification seems to differentiate the civil law and common law approaches. On one interpretation, civil law admits unilateral mistakes relatively easily. This is no doubt because greater emphasis is given to protecting the aggrieved party, sometimes at the expense of legal certainty.72 Here is an example of how legal terminology can be misleading. In most civil law countries ‘unilateral mistake’ may also be opposed to a ‘common mistake’. A unilateral mistake is thus one where the non-mistaken party does not know that the mistaken quality is important; a common mistake is therefore one where the non-mistaken party knew, or should have known of the importance of the mistaken quality.73 A further qualifier is necessary since it has been pointed out that Dutch law does not attach the so-called civil law meaning to ‘common mistake’, for it has the same meaning under Dutch law as the so-called common law terminology.74 It should be clear at once that although the same terms are used, their meaning is entirely different. According to the common law terminology, unilateral (and indeed mutual) mistakes are cross-party mistakes, but there is absolutely no onus on the non-mistaken party to be aware of the importance that the mistaken quality represents to the mistaken party.

Mistakes as to the person

This category of mistake is recognised but not often admitted in practice in nearly all the systems examined. This kind of mistake has not been considered in great depth although it raises the following important question: in what type of contract is the identity of the contracting parties important? A potential mistake as to the person can be identified in Case 12.

70Cheshire, Fifoot and Furmston’s Law of Contract (14th edn, London, 2001); see also Treitel, The Law of Contract, pp. 298--310, who calls this a mistake negativing consent.

71J. Beatson (ed.), Anson’s Law of Contract (28th edn, Oxford, 2002) calls these mistakes ‘mutual’. For Treitel, these are mistakes which negative consent.

72See above at pp. 5--8.

73Ghestin, La formation du contrat, no. 524, p. 488. However, although the signified is clearly present the term unilateral mistake (erreur unilaterale) is not actually used; see below p. 21 for the condition in Italian law etc. that the mistake be recognisable, see also Kötz and Flessner, European Contract Law, p. 188.

74Again, my thanks to Martijn Hesselink who pointed this out to me; this simply proves the point that civil law and common law labels lead to confusion and mistakes! Moreover, it should be recalled that art. 4:103 PECL on mistake adopts the so-called common law terminology.

What kinds of mistake are inoperative?

By contrast, non-fundamental and consequently inoperative mistakes, may be of two types: either relating to motive, or to the value of the thing.

Mistake as to motive

German, Greek and Austrian law all make use of this distinction explicitly and reject mistakes as to motive as non-fundamental.75 This rejection is said to reflect Savigny’s theoretical distinction between two stages in contracting, the moment when the party is forming his intention and actually expressing it.76 Other civil law systems share this idea though it is not expressed in the texts: French law does not admit a mistake sur les simples motifs,77 or more positively requires that the importance of the ‘mistaken quality’ has entered into the contractual field.78 Obviously this cannot be the case if the mistake rests in the unexpressed intention of the mistaken party.

Mistake as to value of the subject matter

No legal system admits mistakes as to the value of the subject matter. These too are non-fundamental mistakes. A much-criticised distinction is drawn between a mistake as to the value of the subject matter of the contract and a mistake as to the qualities of the thing which affects its value,79 the former being non-fundamental, the latter fundamental. It has been suggested that the distinction is artificial and that a more appropriate formula is to examine the mistake in terms of apportionment of risk.80 Clearly, not even the most protective of systems will admit that all mistakes are operative otherwise the consequences for the security of transactions would be disastrous.

75§ 119(1) BGB, art. 143 AK, § 901 line 2 ABGB.

76Kötz and Flessner, European Contract Law, p. 182, nn. 46--7. See German and Greek reports for criticisms, in Case 1.

77Ghestin, La formation du contrat, no. 507, pp. 472 ff.

78See the French report in Case 1 for a more detailed explanation.

79Kötz and Flessner, European Contract Law, p. 183.

80Note that the distinction is not universally criticised, see e.g. German and Greek law where such criticisms are made. Contrast with French law, for example, a mistake as to mere value can be conceptually distinguished from a mistake as to the qualities or substance of the thing affecting its value. When the latter constitutes an erroneous economic assessment arising from exact data it is qualified as a fundamental mistake (sur la substance). See Ghestin, La formation, p. 474.

Bars to recognising operative unilateral mistakes

Numerous bars or limits on unilateral mistake can be identified; the first relates to the behaviour of the non-mistaken party. In France, Belgium, Spain, and Italy (inspired by French case law before the 1942 Italian Civil Code, but also today) judges use a bar, developed as a result of case law, that excludes annulment if the mistake has occurred as a result of the mistaken party’s behaviour, described as inexcusable. It may be appropriate to term this the fault or negligence of the mistaken party81 but we have preferred to use the language of excusable and inexcusable behaviour. The second limit on a mistake is the knowledge (constructive knowledge may be inferred) of the non-mistaken party of the mistake made by the mistaken party. Austrian, Italian82 Portuguese83 and Dutch law make use of this criterion.84 In other words, if the non-mistaken party did not know about the mistake, the mistaken party cannot plead his mistake. This may be another version of a unilateral mistake.85 The

81Kötz and Flessner, European Contract Law, pp. 185 ff.

82Article 1431 of the Italian Civil Code phrases this in the requirement that the mistake must be recognisable (recognisibile), see the Italian report, Case 1.

83It is noticeable that the majority of Portuguese scholars have rejected the requirement of the excusability of the mistake on the basis that this would restrict contracts from being annulled for mistake and that most mistakes are usually based on at least negligence by the mistaken party. See J. Tavares, Os princípios fundamentais de Direito Civil (Coimbra, 1928), vol. II, p. 501; C. Gonçalves, Tratado de Direito Civil (Coimbra, 1931), vol. IV, pp. 304--5; M. De Andrade, Teoria geral da relaç˜ao jurídica (Coimbra, 1960), vol. II, p. 240; F. Correia, Erro e interpretaç˜ao na teoria do negócio jurídico (2nd edn, Coimbra, 1968), pp. 294 ff.; R. De Alarc˜ao, ‘Breve Motivaç˜ao do Anteprojecto sobre o negócio juridico na parte relativa ao erro, dolo, coacç˜ao, representaç˜ao, condiç˜ao e objecto negocial’ in (1964) BMJ 138, pp. 71--122, at pp. 88--90; V. Serra, Anotaç˜ao ao Ac. STJ3/7/1973, in RLJ 107 (1975), pp. 219--23, and 228--32, Anotaç˜ao ao Ac. STJ 14/3/1979, RLJ 112 (1980), pp. 267--8, and 274--5; P. De Lima and A. Varela, Código Civil Anotado (4th edn, Coimbra, 1987), vol. I, p. 233; C. Mendes, Teoria geral do Direito Civil (Lisbon, 1985), vol. II, pp. 91 ff.; O. A. Ascens˜ao, Teoria Geral do Direito Civil (Lisbon, 1992), vol. III,

pp. 109--10; C. Mota Pinto, Teoria geral do Direito Civil (3rd edn, Coimbra, 1985), pp. 511 ff.; C. Fernandes, Teoria geral do Direito Civil (2nd edn, Lisbon, 1996), vol. II, pp. 131 ff.; P. Mota Pinto, Declaraç˜ao tácita e comportamento concludente no negócio jurídico (Coimbra, 1995), pp. 406 ff., n. (440). Portuguese law appears to be very protective of the mistaken party and only a small minority of scholars have suggested that the excusability of the mistake should be considered but this view has not been accepted by the courts: see B. Dos Santos, A simulaç˜ao em Direito Civil (Coimbra, 1921), vol. I, pp. 55--6; L. Cabral De Moncada, Liç˜oes de Direito Civil (4th edn, Coimbra, 1995), p. 619, n. (2), and p. 628; G. Telles, Manual dos Contratos em Geral (3rd edn, Coimbra, 1965), pp. 80--1 and M. Cordeiro, Da Boa Fé no Direito Civil (Coimbra, 1984), vol. I, pp. 516 ff.

84As does art. 4:103 PECL. 85 See at (ii) above.

third identifiable criterion is the assumption of risks, a consideration used by German law86 and Dutch law for example.87 Other factors, such as causation of the mistake by the other party may be used as a criterion. Scots law, for example, refers to an ‘uninduced unilateral error’.88 Austrian law also examines whether or not the non-mistaken party caused the mistake.89 Likewise, misrepresentation in English (and Scots) law is nothing other than that: a mistake induced by a statement or conduct of the other party. If the other party (the misrepresentee) also made the same mistake as the misrepresentor, it is (i) innocent misrepresentation and (ii) common mistake. If the other party (the misrepresentee) did not make the same mistake as the misrepresentor, it is (i) misrepresentation and (ii) unilateral mistake.90 Finally, the absence or presence of reliance of the non-mistaken party on the contract may likewise exclude91 or qualify92 the annulment, whereas in some national systems, reliance is not a significant factor.93

Miscellaneous concepts other than mistake

We have not deliberately set out to find functional equivalents94 for mistake. Intuitively, the national reporters have suggested other remedies

86See Case 1 for an example. Kötz and Flessner, European Contract Law, pp. 184--6, suggest that the question of whether or not a mistake falls into the sphere of risk of the mistaken party can be equated with taking into account the fault of the mistaken party.

87Article 6:228(2) BW (Dutch code). See Case 1. and the analysis of the Kantharos case.

88See Case 1, Scots report.

89If the non-mistaken party has caused the mistake, he is not entitled to protection and annulment will be granted (§ 871 ABGB). See Case 1, Austrian report for a full explanation.

90I am grateful to John Cartwright for formulating this idea. It is noteworthy that few English contract law books make the association between mistake and misrepresentation. See however, R. Goff and G. Jones, The Law of Restitution (6th edn, London, 2002), ch. 9 and J. Cartwright, Misrepresentation (London, 2002); whereas the overlap between mistake and misrepresentation is much more obvious to comparative lawyers or civil lawyers generally. See for example, Zweigert and Kötz, Introduction to Comparative Law, pp. 419--21; Kötz and Flessner, European Contract Law, p. 173.

91See Austrian report, Case 1. Likewise Dutch law considers whether a mistake was due to a statement by the other party (art. 6: 228a BW).

92See German and Greek reports, Case 1.

93For example in systems closely linked to the will theory of contract, e.g. France and Belgium.

94For an account of functionalism as a methodology used by comparativists, see

D. Kennedy’s explanation of Zweigert and Kötz’s methodology, in ‘The Methods and Politics of Comparative Law’, pp. 170--5.

when attempting to find the solution to cases since they were asked to consider all available remedies on offer for the claimant. By identifying these other remedies we are not in any way presuming that they are functional equivalents. However, it is necessary to introduce a number of concepts to familiarise the reader with the panoply of available remedies. The comparative observations after each case point out what role these other remedies actually play.

German law has sometimes referred to the doctrine of ‘the failure of the basis of the transaction’95 (now called Geschäftsgrundlage96), originally traceable to the customary law rebus sic stantibus.97 Greek law has also been influenced by German law,98 as has Italian law with its doctrine of presupposizione.99 The Netherlands uses a concept called dezelfde onjuiste veronderstelling (shared mistaken assumptions) under art. 6:228 (c) BW which is however part of the mistake doctrine. It also has a doctrine of change of circumstances (onvoorziene omstandigheden), which only applies in case of ‘mistake’ with regard to assumptions relating to the future. In Scandinavian countries, also influenced by German legal theory, a doctrine of contractual assumptions was developed principally through Danish writing.100 A common term is ‘failed contractual assumptions’ (sviktende forutsetninger).101

Two important provisions of Scandinavian law must be emphasised: in the common Scandinavian contract legislation from the early 1900s, a general rule with respect to honest behaviour and good faith on entering into agreements was accepted (cf. the Contract Act § 33.4). In the 1980s, a remarkable expansion of the invalidity regulations in Scandinavian law took place by the adoption of the Contract Act § 36, the so-called General Clause, which applies to ‘unreasonable contracts’.

95The concept has been developed by B. Windscheid, Die Lehre des römischen Rechts von der voraussetzung (1850), pp. 80 ff.

96P. Oertmann, Die Geschäftsgrundlage -- ein neuer Rechtsbegriff (1921), p. 37. ‘The basis of the transaction is the assumption or expectation of one party or the mutual assumption or expectation of several parties which arises at the conclusion of the contract relating to the existence of the intervention of those circumstances constituting the basis for the intention underlying the transaction and the importance of which is recognised and not objected to by the other party.’ I am indebted to Martin Schermaier for this explanation.

97See more specifically, in Chapter 2, pp. 39--64 below.

98For examples, see Case 1, German report; Case 6, Greek report.

99See the Italian report for an illustration, Case 1.

100A more recent description of the doctrine is found in the monograph, B. Lehrberg,

Förutsettningsläran (Uppsala, 1989).

101See the Norwegian report, Case 1 for a full explanation.

French and Belgian law have sometimes referred to the concept of absence de cause, as an alternative remedy to that under the head of mistake. Italian law also uses the concept of causa.102 The cause of the contract is an essential condition of its validity and is thus distinct from defects of consent.103

Finally, the concepts of laesio enormis104 and lésion qualifiée105 have been considered.

Fraud

Fraud is relatively straightforward as a concept, its main component being an intention to deceive. What actually constitutes fraud is possibly more complicated and is left to discussion in the cases. Fraud gives the right to annulment and damages. In some cases it will deprive the fraudulent and non-mistaken party of his right to damages for negative interest,106 as already discussed. The reason why fraud is not treated in much detail as a separate concept is that it tends to overlap with duties to inform.107 It is because of the overlap that fraud has been included in this study. It is impossible to treat either mistake or duties to inform without touching on fraud.

Duties to inform

The common and civil law systems divide over the precontractual obligation to provide information. Very generally, civil law countries impose a precontractual duty to inform more liberally than their common law

102 See for example, Case 9. 103 See Case 12 for an example.

104 Under Austrian law, see Case 1. 105 Under Belgian law, see Case 1.

106‘Negative interest’ can be roughly explained as follows: although the aggrieved party may be entitled to annul the contract, his remedy is counterbalanced by his liability to the non-aggrieved party for the harm which the latter has suffered as a result of relying on the validity of the contract. These damages are also called ‘reliance interest’, based on the idea that reliance underlies the contractual relationship. The idea belongs to German law and other systems influenced by German law also recognise it (Italy, Greece, Portugal and Spain). See the seminal article of Fuller and Perdue, ‘The Reliance Interest in Contract Damages’ (1936) 46 Yale LJ 52; p. 373 which suggests that reliance interest is also contained, although not explicitly recognised, by American law.

107An objection raised by M. Hesselink suggests that duties to inform overlap with mistake (as under Dutch and German law) but the same argument was not mentioned above; this might be begging the question since this study sets out to examine this triangular overlap and it is certainly not obvious for all national systems considered that duties to inform overlap with mistake.

counterparts.108 It appears trite to state that the common law does not recognise a general duty of disclosure; on the contrary some would say that it discourages such a principle on the grounds of inter alia economicbased analyses.109 The presence of a duty to provide information can be ascertained first by examining its negative aspect, which is most clearly seen by the differing attitudes towards silence. For example, French law’s attitude to silence is that it can be penalised if framed in terms of a fraudulent concealment.110 Other national laws call this negative fraud.111 In Dutch law this is framed as a mistake, caused by a breach of the duty to inform. The mere existence of the duty implies that silence is reprehensible. It may even be more accurate to suggest, as already mentioned, that a positive duty to inform has been inferred from silence.112 According to Nicholas, such a method of induction-deduction from and to general propositions runs contrary to the grain in English law since the latter develops propositions of law incrementally.113 In contrast, the common law’s view of silence is that no remedy is available unless a positive statement has been made. Thus, misrepresentation, a common law concept, cuts straight across mistake and the duty to inform. Moreover, misrepresentation cannot be equated to a duty to inform since the duty to tell the truth does not arise at the same point in time. Whereas a duty to inform imposes a positive duty to tell the truth (and sometimes a negative duty not to conceal the truth), misrepresentation does not impose a duty (positive or negative) to make an initial statement. The point of misrepresentation (including conduct, half-truths and active fraudulent concealment) is that when statements are made, they must be truthful.

Furthermore, the importance of (fraudulent) concealment as a means of identifying a positive duty to inform should be highlighted. It has been suggested that imposing a duty to inform may raise the standard

108See P. Legrand, ‘Pre-Contractual Disclosure and Information, English and French Law Compared’ (1986) 6 OJLS 322; J. Ghestin, ‘The Pre-Contractual Obligation to Disclose Information: French Report’, pp. 151 ff. in D. Harris and D. Tallon (eds.), Contract Law Today: Anglo-French Comparisons (Oxford, 1989) and B. Nicholas, ibid. English Report, pp. 166 ff.

109B. Rudden, ‘Le juste et l’inefficace, pour un non-devoir de renseignement’ (1985), RTDCiv, 91 ff.

110On the notion of réticence dolosive, see the French report, Case 2.

111Spanish law refers to negative fraud (see Cases 2 and 6), whereas the Italian reporter suggests the concept may be useful although it is not yet recognised (see Case 2).

112See Ghestin, ‘The Pre-Contractual Obligation to Disclose Information: French Report’.

113See Nicholas, ‘The Pre-Contractual Obligation to Disclose Information: English Report’.