Abstract
Equitable concepts and remedies play a significant - and growing - role in cases arising out of commercial transactions. Such use is exceptional, but it is nevertheless systematic; and, significantly, the majority of the transactions to which it relates involve a contractual element. Courts, in other words, systematically invoke equitable principles – and not principles of the law of contract – to resolve commercial disputes in transactions governed by a contractual framework, and in relation to issues, such as gap filling and protecting expectations, that are generally taken to be part of the core functions of the law of contract.
I argue that the invocation of equitable principles in a commercial context must be understood as a deliberate departure from the market-rationality understanding of the transaction that is reflected in the law of contract, in favour of a more relational understanding of the transaction. The reasons for this departure and its exceptional character reflect the traditional equitable jurisdiction over fraud and its preoccupation with conscience, and specifically the equitable realisation that the unfettered application of strict rules of law can be destructive of the trust that is necessary for the effective functioning of commercial markets. Drawing upon the economic theory of Karl Polanyi, I argue that ‘conscience’, in the sense it is used by courts applying equitable principles today, is principally a device to capture and represent in legal terms the ‘embeddedness’ of commercial transactions in a broader social context, and of market expectations in broader social expectations. This, I argue, has broader implications for our understanding of the structure and basis of contract law and for theories of the relationship between the law and practice of commercial contracting.
I argue that the invocation of equitable principles in a commercial context must be understood as a deliberate departure from the market-rationality understanding of the transaction that is reflected in the law of contract, in favour of a more relational understanding of the transaction. The reasons for this departure and its exceptional character reflect the traditional equitable jurisdiction over fraud and its preoccupation with conscience, and specifically the equitable realisation that the unfettered application of strict rules of law can be destructive of the trust that is necessary for the effective functioning of commercial markets. Drawing upon the economic theory of Karl Polanyi, I argue that ‘conscience’, in the sense it is used by courts applying equitable principles today, is principally a device to capture and represent in legal terms the ‘embeddedness’ of commercial transactions in a broader social context, and of market expectations in broader social expectations. This, I argue, has broader implications for our understanding of the structure and basis of contract law and for theories of the relationship between the law and practice of commercial contracting.
| Original language | English |
|---|---|
| Title of host publication | Commercial Contract Law: A Transatlantic Perspective |
| Publisher | Cambridge University Press |
| Publication status | Accepted/In press - 2012 |