You are on page 1of 11

INEVITABLE CONFLICTS AND TENSIONS BETWEEN THE

GENERAL PRINCIPLES OF COMMERCIAL LAW

Introduction
In the absence of an agreed legal definition of commercial law, it is becoming more
sensible to identify the commercial law by looking at its principles. 1 The essential
purpose of Commercial Law is to facilitate commercial activities from different
jurisprudence sector, 2 such as sales of goods and services, finance issue, defective
product, the fairness of the trading itself, property, tort, and negligence.3 By referring to
the purpose of the commercial law, there are several general principles of commercial
law, such as party autonomy; certainty and predictability; flexibility; pragmatism;
protection of property rights; privity of contract; and good faith.4
The hardest task is to have the right balance of these general principles of commercial
law to reach for the right conclusion on a specific dispute and able to applied it again in a
different places according to the circumstances.

According to the principles of

commercial law, to some extent, I agree that in the application, the general principles of
commercial law does create unavoidable conflicts and tension between one to another,
because not all of the principles can go along one to another nicely, to be able to achieve
such principle in one case, the judge must sacrifice other principles, however not all of
these principles being contrary, some of these principles at the same time also able to
promote other principles. This essay tries to observe the connection between each general
principle by evaluating it from several cases.

rd

Robert Bradgate, Commercial Law, (3 edn, Butterworths 2000), 4


Ibid
3
Ewan McKendrick, Goode on Commercial Law, (4th edn, Lexis Nexis 2009), 10-11
4
Roy Goode, The Codification of Commercial Law, 14 Monash U. L. Rev. 148-152 [1988]
5
Bradgate (n 1), 5
2

1|Page

The Inevitable Conflicts and Tension between Commercial Law Principles


The commercial people expect the law to be capable of providing them with clear and
certain solution upon commercial issues that can be applied in a predictable way to earn
predictable result over a dispute without resort to litigation. 6 Businessmen hope that
when commercial law is predictable, then the parties will able to order their affairs7
with reference to it and also predict whether it is worthwhile for them to pursue offer one
claim or to decide the matter in an amicable manner. 8 One of the commercial court
objectives is to provide settled legal rules that are not easily changing so the party might
deal with the commercial contract based on specific rules. 9 Although not every
commercial contract uses the standard form but Lord Denning has put an emphasized for
certainty in The Annefield v Owners of Cargo Lately Laden on Board the Annefield, by
saying that once the commercial court establish a standard form of commercial
documents, all of the commercial player has to act according to it through all sequent
cases.10 Lord Lloyd also reaffirmed this certainty in The Giannis K11 that unless he is
convinced that the leading practitioner was mistaken, and then he will averse to disturb
the course, because he did not want to bring uncertainty on specific course that has been
like this for many years.
Through the years, businessmen constantly try to find new ways to achieve the most
effective and efficient methods of doing commercial practices. The commercial law
should go along and being able to adapt and provide any change of commercial practice,
like Atkin J said in Groom V Barber that the courts should accept the new interpretation
of an old form if it is clear that in fact there is a change.12 Lord Steyn in Vitol SA v Norelf
Ltd, The Santa Clara13 also affirm that the Court might consider the parties to contracted
based on commercial practices as far as the court were satisfied that the commercial
custom had shown certainty, well established and being reasonable.14 Even further, Lord
6

McKendrick (n 3), 5
Roy Goode, Commercial Law in the Next Millenium, (Sweet & Maxwell, 1998), 14
8
Bobby Hussain, Interpretation of Contract in Commercial Law: Competing Principles, 11 Trinity C. L. Rev. 59
[2008]
9
Bradgate (n 1), 5
10
[1971] 1 All ER 394
11
Effort Shipping Co Ltd v Linden Management SA [1998] 1 All ER 495
12
[1915] 1 KB 316
13
[1996] AC 800 (HL)
14
Bradgate (n 1), 7
7

2|Page

Hoffman gives highlight on the flexibility of law principle by alleging that the court
should be slow to declare that a practice of a commercial activity is conceptually
impossible.15
However the need for flexibility to adapt the changes remains to be done with caution
and wisely. Some argue that this act will come with a price of certainty because
sometimes in a way to accept and accommodate these activities, the commercial law has
to be flexible in order even extent the legal concept or disavow the principles for all
kind of legal magic that can be worked by mercantile usage. 16 Conflict between
certainty and flexibility can be seen through The Vitol SA v Norelf Ltd, The Santa
Clara.17 In this case, the arbitrator holds on to the certainty by directing himself correctly
in accordance with the general principles governing where he expressly said that an
acceptance must be communicated to the other party or else it affect nothing to both
parties , however, Lord Steyn refuse this argument by clearly says,
Sometimes in the practical world of businessman an omission to act may be as
pregnant with meaning as a positive declaration. While the analogy of offer and
acceptance is imperfect it is not without significance that while the general
principle is that there can be no acceptance of an offer by silence, our law does in
exceptional cases recognise acceptance of an offer by silence.18
The pragmatism expects that the court does not only look at the concept of term in
commercial law, but also to look beyond it on how the business player acts with the term
at commercial activity. This pragmatism is well explained by Robert Goff LJ,19
In every case, we have to look at the relevant documents and other
communications which have passed between the parties and to consider them in the
light of the relevant surrounding circumstances, in order to ascertain the rights and
duties of the parties inter se, always paying particular regard to the practical effect
of any conclusion concerning the nature of those rights and duties. In performing

15

Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214


Goode (n 4), 155
17
[1996] AC 800 (HL)
18
Ibid, 81
19
Clough Mill Ltd v Martin [1984] 3 All ER 982 CA
16

3|Page

this task, concepts such as bailment and fiduciary duty must not be allowed to be
our masters, but must rather be regarded as the tools of our trade.20
He emphasized that concepts should be the tools to facilitate the trade. This pragmatism
force the commercial court to make some objective approach to interpret a commercial
contract by assessing the intention of the contracting party, not in a way to investigate the
real intentions of the parties but to discover the contextual meaning of the relevant
contractual language inside the contract. 21 Party autonomy adopts the old approach or
well known as literal approach that look for the ordinary or literal meaning of the term
without put any backgrounds or external factors into the consideration. 22 Since the
principle of party autonomy upheld the idea of non-interventionist approach, this
pragmatic way of objective approach brings out an unavoidable conflict because in order
to implement the objective approach the commercial court must step in the contract and
make the interpretation of the contract whenever the terms that being used in the contract
does not explain the true meaning or when both parties have different interpretations of
the term. Nevertheless, it is not the duty of the court to search for ambiguity or to create
an ambiguity if it is not there, the starting point is to observe the words used to find out
whether they are clear and unambiguous. The case of Rainy Sky SA and others v Kookmin
Bank23 explain quite well with Hoffman LJs quote,
But language is a very flexible instrument and, if it is capable of more than one
construction, one chooses that which seems most likely to give effect to the
commercial purpose of the agreement.24;
and also from Longmore LJ ,
..if a clause is capable of two meanings, it is quite possible that neither meaning will
flout common sense, but that, in such a case, it is much more appropriate to adopt
the more, rather than the less, commercial construction.25
The party autonomy usually promotes the certainty, however, there is time when the
court tried enforcing the sanctity of the contract, and it also brought an uncertainty into
20

Ibid, 987
Bradgate (n 1), 69
22
Janet OSullivan & Jonathan Hilliard, The Law of Contract, (6th edn, OUP 2014), 182
23
[2011] UKSC 50
24
Ibid, 20
25
Ibid
21

4|Page

their judgement. In May & Butcher v R26, the contract says that the price of goods and the
date of delivery would be decided later upon both parties, and then the court held that
there is no contract being established between the parties, Lord Buckmaster clearly said
that ..some critical part of the contract matter is left undetermined (then there) is no
contract at all.27 This May case being contrast with the Foley v Classique Coaches,28
although the critical part of the contract, namely price and quality, were not exist, the
court decide that the agreement still bound both parties. In this case Greer LJ applied that,
..in the absence of agreement as to price a reasonable price must be paid, and if the
parties cannot agree as to what is a reasonable price then arbitration must take place.
It is quite true that one cannot add to a contract an implied term inconsistent with or
which contradicts the express terms of the contract, but in a suitable case one can
imply a term, and in my judgment ....... shall be reasonable is in no way
inconsistent with the agreement.29
The principle of protection of property and privity of contract are two well establish
principles in commercial law, but also perform in a contrary direction.30 Protection of
property rights shows that owner should not lose his property if it is not he who made
fault; whilst the privity of contract believe that the innocent buyer as the third party
should be protected against proprietary rights of which they have notice. 31 However, it is
improbable that the identity of the objects and the real relations between tenants and
suppliers can win against the principle of contractual property.32 These two principles
also brought up by Denning LJ in Bishopgate Motor Finance Corpn Ltd v Transport
Brakes Ltd33,
In the development of our law, two principles have striven for mastery. The first is
for the protection of property: no one can give a better title than he himself
possesses. This second is the protection of commercial transactions: the person who
takes in good faith and for value without notice should get a good title. The first

26

[1934] 2 KB 17
Ibid, 20
28
[1934] 2 KB 1 (CA)
29
Ibid, 11
30
Goode (n 4), 152
31
Ibid
32
Iwan Davies, The Phenomenon of Commercial Law: A Quest for Principles?, 23 Cambrian L. Rev. 46 [1992]
33
[1949] 1 KB 322
27

5|Page

principle has held sway for a long time but it has been modified by the common
law itself and by statute so as to meet the needs of our own times.34
In England, this started with nemo dat principle35 but being pushed forward by the Sale
of Goods Act,36 which explain that whenever the goods were sold by a person who is not
the owner nor a seller with authority to sale, the title of the goods remains at the owner
and will not be transferred to the buyer unless the owner, by his own will, accepting the
sellers authority to sell the goods. This rule shows at Greenwood v Bennett and Others37.
In this case Bennett as the owner of a Jaguar car entrusted the car to Searle to repair it
and paid him 85, but then Searle used it for his own purposes and caused massive
damage to the car in an accident. Searle sold the car for 75 to Harper, who believes that
Searle is the owner of the car. Harper spent 226 to repair the car and sold it to a finance
company for 450. The court held that the car belonged to Bennett because Searle did not
have title or authority to sell it and therefore could not transfer the title to Harper and
based on the same reason, Harper could not transfer the title to the finance company.
Bennett recovers his title of the car again but he also has to pay Harper for the effort that
he did to the car.
Although the nemo dat principle still valid, but in order to give protection to the innocent
third parties so the stream of trade keeps running well,38 English Law has established
Contract (Rights of Third Parties) Act 1999 was significantly reformed the Privity of
Contract by change one of its rules. The third parties able to enforce the terms of a
contract if the third party is specifically mentioned in the contract as someone authorised
to do so, and if the contract "purports to confer a benefit" on third parties.39
Even though in continental jurisprudence the good faith is important40 and could help to
solve particular disputes,41 but good faith also criticised as leading to uncertainty while
the other mechanism under English Law could also give similar effects.42 This is stated
34

Ibid, 336-337
Nemo dat principle means that the transferor of goods cannot pass a better title than he himself possesses
36
[1979], s 21 (1)
37
[Interpleader Plaint No. 71.50162]-[1973] QB 195
38
Goode (n 4), 152
39
Contract (Rights of Third Parties) Act 1999, s 1(1)
40
Stated at German Civil Code [1896] s242 and Uniform Commercial Code (UCC) [1952] art 1:203
41
Husain (n 17), 61
42
Len Sealy and Richard Hooley, Commercial Law: Text, Cases and Materials (3rd, ed, LexisNexis, 2003), 48
35

6|Page

by Bingham LJ43 that good faith could not prevent parties from deceive each other but
only requiring the businessman to bring up all the information up to the table.

The Empowering Relation between Commercial Law Principles


The basic philosophy of commercial law is the freedom of businessman to create their
own law under contract 44 to give respect for party autonomy. Partys intention on
contract is considered really important under English contract law, as Lord Wright
mention in Hillas &Co Ltd v Arcos Ltd 45 that as far as both parties intend to make a
contract and thought they had done so and find that the contract sufficient and clear
enough for them even when the contract seems to be incomplete and imprecise for some
people whose not embroiled in the same business course. The implementation of respect
for party autonomy helps to promote the certainty. Lord Wright stated that party
autonomy, by not giving attention to parties intention; also emphasize the need for
certainty,
if there eventually emerges differences between the parties, the standard of
what is reasonable can, is the last resort, be applied by the law, which thus by
ascertaining exact dates makes precise what the parties in the contract have
deliberately left undefined. Hence, in view of this legal machinery, id certum est
quod certum redid potest.46
Lord Wright refers to the Latin maxim that means it is certain if it is capable of being
rendered certain.47
The parties are entitle to all benefits based on their negotiation and their performance of
condition on contract with another party, however, when the contract intention is
considered for being too restrictive, oppressive or against the public interest then the
courts may interfere to restrain the sanctity of the contract.48 Through Foley v Classique

43

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd. [1989] QB


Goode (n 4), 148
45
[1932] 147 LT 503
46
Hillas &Co Ltd v Arcos Ltd, [1932] 147 LT 504
47
Hussain (n 8), 65
48
Goode (n 4), 149
44

7|Page

Coaches Ltd49, the parties may also relieve because most of the time the court will not
interfere into the contract, especially in the purpose of fulfilling the commercial interest
of one party that changing after several times. However, the freedom of contract is not
always justified by the law; Lord Wilberforce 50 does mention that if a contractual
restriction appears to be unnecessary and quite able to be enforced in a manner
oppressive, then it must be justified before it can be enforced.
The flexibility also goes along with the pragmatism because the flexibility is the way
commercial law adapts to changes in commercial practises, while the pragmatism is the
next step after flexibility; Pragmatism is the way for commercial law responds to such
changes in commercial practise.51

Conclusion
The general principles of commercial law hold significant roles to maintain the sustainability of
commercial activities. In order to apply the general principles upon some circumstances, often
the judges cannot avoid the conflict and tension that occur between the principles because
some of these principles tend to be achieved only at the expense of another principle. 52
However, it is not every principle against one to another; there are also several principles, but
that in practice it tends to emphasize on the implementation of other principle, which is why
the court has to put a reasonably rational balance between these general principles.
Nevertheless, these various relationships between the principles has only one purpose which is
to facilitate the commercial activity, 53 as Lord Steyn has mentioned that the principles of law is
to give effect to the legitimate expectation of honest people.54

49

[1934] 2 KB 1 (CA)
A. Schroeder Music Publishing Co. Ltd v Macaulay [1974] 1 WLR 1308 (HL)
51
Bradgate (n 1), 8
52
Ibid , 5
53
Ibid
54
Lord Steyn, Contract Law : Fulfilling the Reasonable Expectation of Honest Men, 113 LQR 433 [1997]
50

8|Page

BIBLIOGRAPHY
Primary Sources
Cases:
A. Schroeder Music Publishing Co. Ltd v Macaulay [1974] 1 WLR 1308 (HL)
The Annefield v Owners of Cargo Lately Laden on Board the Annefield [1971] 1 All ER 394
Bishopgate Motor Finance Corpn Ltd v Transport Brakes Ltd [1949] 1 KB 322
Clough Mill Ltd v Martin [1984] 3 All ER 982 CA
Foley v Classique Coaches [1934] 2 KB 1 (CA)
Greenwood v Bennett and Others [Interpleader Plaint No. 71.50162]-[1973] QB 195
Groom v Barber[1915] 1 KB 316
The Giannis K, The Effort Shipping Company Limited v Linden Management SA and Others
[1998] All ER 495
Hillas &Co Ltd v Arcos Ltd [1932] 147 LT 503
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd. [1989] QB
May & Butcher v R [1934] 2 KB 17
Rainy Sky SA and others v Kookmin Bank - [2011] UKSC 50
Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214
Vitol SA v Norelf Ltd, The Santa Clara [1996] AC 800 (HL)

9|Page

Legislation:
The Sale of Goods Act 1979
The Unfair Contract Terms Act 1977
The Unfair Terms in Consumer Contracts Regulations 1994
The Contract (Rights of Third Parties) Act 1999
German Civil Code 1896
Uniform Commercial Code (UCC) 1952

Secondary Sources
Books
Bradgate R, Commercial Law (3rd edn, Butterworths 2000)
McKendrick E, Goode on Commercial Law (4th edn, Lexis Nexis 2009)
Goode R, Commercial Law in the Next Millenium, (Sweet & Maxwell, 1998)
OSullivan Janet & Hilliard Jonathan, The Law of Contract (6th edn, OUP 2014)
Sealy L and Hooley R, Commercial Law: Text, Cases and Materials (3rd, ed, LexisNexis,
2003)

Journal Articles
Goode R, The Codification of Commercial Law [1988] Monash U. L. Rev. 135
Hussain B, Interpretation of Contract in Commercial Law: Competing Principles [2008] Trinity
C. L. Rev. 58

10 | P a g e

Davies I, The Phenomenon of Commercial Law: A Quest for Principles? [1992] Cambrian L.
Rev. 42
Lord Steyn, Contract Law : Fulfilling the Reasonable Expectation of Honest Men [1997] LQR
433

11 | P a g e