ARTICLE REVIEW

EQUITY OPPORTUNISM IN THE LAW OF CONTRACT: A CASE STUDY

IN FUSION BY DIFFUSION

- TAN ZHONG XING

Submitted to: -

Varun Malik

Faculty, Law of Contracts-I

Submitted by: -

Vedika Singh

II Semester, I Year

2019-5LLB-113

NALSAR University of Law, Hyderabad

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 Contents
INTRODUCTION......................................................................................................................2

SUMMARY...............................................................................................................................3

CRITICAL ANALYSIS.............................................................................................................5

CONCLUSION..........................................................................................................................8

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 INTRODUCTION
The fusion debate of equity and common law is very old and contentious. The debate can be
traced back to the time when Judicature Acts of 1873 & 1875 were created which
amalgamated the Court of Chancery and the Common Law Court into a single court. Since
then, the contention is with respect to whether this amalgamation was just for procedural
convenience or also signified the fusion of substantive part of the two. 1 Fusionists’ approach
characterises ‘fusion’ as providing legal remedies for the breach of equitable rights whereas
anti-fusionists promote that equity possesses a distinct quality from that of common law. 2
Professor Ashburner stated that ‘the two streams of jurisdiction, though they run in the same
channel, run side by side and do not mingle their waters’. 3 Whereas some argue that there has
been a doctrinal fusion of law and equity independent of the Judicature Act 4 when some put
forward the view that only the legislation determines the extent of intermingling of the
concepts. The author of the article being reviewed extends on Henry Smith’s “opportunism
thesis of equity” in context of contracts law and suggests the process of fusion by diffusion
where “equity does not destroy the law, nor create it, but assists it.5

1
For instance, Keith Mason distinguished between four varieties of fusion: “fusion of administration, procedure,
remedies and doctrines”: see Keith Mason, Fusion, Fallacy or Finished?” in Equity in Commercial Law (Simone
Degeling & James Edelman eds) (Lawbook Co., 2005) at p.45.
2
Lionel Smith, “Fusion and Tradition” in Equity in Commercial Law (Simone Degeling & James Edelman eds)
(Lawbook Co., 2005) at pp. 223-26.
3
Justice R P Meagher, Justice J D Heydon and M J Leeming (4th ed), Meagher Gummow and Lehane’s Equity
Doctrines and Remedies (2002) at 12.
4
Sir Mason P, Harris v Digital Pulse (2003) 5 NSWLR 298.
5
Lord Dudley and Ward v Lady Dudley (1705) Pr Ch 241 per Sir Nathan Wright LJ in at 244.

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 SUMMARY
The article starts with introduction of what the debate is about and what various authors and
legal authors have to talk about it. It further illustrates the distinctive qualities that equity
possesses like equitable discretion, conscience-based jurisdiction, a moral norm requiring
respect for other people’s obligations and justiciability of motive. But Smith’s opportunism
narrows such qualities of equity to opportunistic behaviour identified in line with commercial
norms rather than pointing towards policy-based equity. He further elucidates how such
function of equity gives the architectural form to the doctrines of duress, undue influence and
unconscionability in the realm of Contracts Law. Under the doctrine of duress, claimant’s
weakness is situational which again depends on defendants’ making an unreasonable demand
along with illegitimate threat6 which coerces the claimant to surrender to his demands and
enter into a contract as pointed out by Lord Scarman in Universe Tankships, Inc of Monrovia
v. International Transport Workers’ Federation 7. The author further proposes that the burden
of proof in proving economic duress is less than duress against person, property as held in
Huyton v Cremer8. He further elaborates on the general and universal approach that is used to
shift the burden of proof between the claimant and the defendant. Under doctrine of undue
influence, the “language of advantage taking and victimisation designates an omission: a
failure by the defendant to protect the claimant’s interests as the parties’ relationship
requires.”9 He further proposes how actual undue influence though easy to prove by fulfilling
the conditions such as the defendant in position of influencing claimant’s will, claimant
having no other option and thus the causal link between such relational vulnerability taken
advantage of and entering into the transaction10, is different from presumed influence where
courts have identified various such relationships 11 which influence the claimant’s decision-
making because of the trust and confidence that he has on such other people which clouds his
rationality12 and also, such transaction if entered into would prove to be very disadvantageous
i.e. taking different course from what a reasonable person’s motive would have been. 13 The

6
Andrew BL Phang & Goh Yihan, Contract Law in Singapore (Wolters Kluwer Law and Business, 2012) at p.
296.
7
Universe Tankships, Inc of Monrovia v. International Transport Workers’ Federation, [1983] 1 AC 366.
8
Huyton SA v. Peter Cremer GmbH & Co., [1999] 1 Lloyds Rep 620, at 636.
9
Mindy Chen-Wishart, Contract Law (Oxford University Press, 5th Ed, 2015) at p. 345.
10
Andrew Burrows, A Restatement of the English Law of Contract (Oxford University Press, 2016) at p. 200-
201; see also, Pek Nam Kee v Peh Lam Kong, [1994] 2 SLR(R) 750, Rajabali Jumabhoy v. Ameerali R
Jumabhoy, [1997] 2 SLR(R) 296, Bank of Credit and Commerce International SA v. Aboody, [1990] 1 QB 923.
11
Allcard v Skinner [1887] 36 Ch D 145, para 47.
12
Sarah Worthington, Equity (Oxford University Press, 1st Ed, 2003) at p. 195.
13
Andrew Burrows, A Restatement of the English Law of Contract (Oxford University Press, 2016) at p. 200.

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author in context of these two doctrines successfully points out how the common law had
adopted very limited view of opportunism until the category of duress expanded to include
duress against property and economic duress14 and also the equity’s answer to opportunism
under the category of undue influence also, in third party cases where previously the
threshold of determining opportunistic conduct in such transactions was looking at the
husband’s conduct and wives’ vulnerability and response to such conduct where they were
totally unaware of the disadvantageous situation that they entered into 15 was reduced to look
at the conduct of the bank where if the bank from its side had made enough enquiry so as by
reading the wife the transactional terms or asking her to refer to solicitors 16 and if not then as
per Yerkey v Jones17, relief of “special equity” had been preserved for them. It further
extends on how common law gains equitable inspiration by expanding the scope of duress in
terms of unconscionable conduct, for example, in The Atlantic Baron 18, Burmah Oil Co. Ltd
v. Governor and Company of the Bank of England19 and Barton v Armstrong20 The article in
a way ends with referring to how the doctrine of unconscionability points towards union of
common law and equitable influences. Exploitation of weakness forms the underlying
principle of both the equitable jurisdiction to set aside ‘unconscionable bargains’ and the
common law jurisdiction to set aside the ‘salvage agreements’ 21 thus weaving the common
thread through unconscionability cases as hinted out by Lord Denning in Lloyds Bank Ltd. V.
Bundy22 and Melvin Eisenberg’s referring to Magnolia Petroleum Co. v. National Oil
Transport Co.23 Thus, the author concludes by coming up the ‘fusion by diffusion’ process
that according to him is what Smith’s opportunism thesis of equity’ attempts to achieve such
that equity’s opportunism-countering function has travelled across the common law-equity
jurisdictional divide in a criss-crossing manner.24

14
Jack Beatson, “Duress as a Vitiating Factor in Contract” (1974) 33(1) The Cambridge Law Journal 97 at 103-
104.
15
Barclays Bank plc v. O’Brien, [1994] 1 AC 180.
16
Royal Bank of Scotland plc v. Etridge (No. 2), [2002] AC 773.
17
Yerkey v Jones, [1939] 63 CLR 649.
18
North Ocean Shipping Co. Ltd. V. Hyundai Construction Co. Ltd., [1979] QB 705.
19
Burmah Oil Co. Ltd v. Governor and Company of the Bank of England, [1980] AC 1090.
20
Barton v Armstrong, [1976] AC 104.
21
Andrew Burrows, A Restatement of the English Law of Contract (Oxford University Press, 2016) at p. 209.
22
Lloyds Bank Ltd. V. Bundy, 281 F 336 (SD Tex 1922).
23
Magnolia Petroleum Co. v. National Oil Transport Co., [1975] QB 326.
24
Equity Opportunism in the Law of Contract: A Case Study in Fusion by Diffusion, (2018) 30 SAcLJ 305.

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 CRITICAL ANALYSIS
The prolonged ‘fusion debate’ has in many ways made us to look at the both sides of the coin
i.e. equity and common law very carefully. What the orthodox view held is seen manifestly in
Salt v Cooper25, as well as, Rhone v Stephens 26, where The House of Lords emphatically
“refused to alter the rules of either system with regard to restrictive covenants in land in the
name of equity” underlining the very clear distinction between the two jurisdictions. But at
the same time, the radical view that both have fused completely as pointed out in A-G v
Mellington Newspapers Ltd27 that “law and equity are now mingled hence the full range of
remedies should be available in common law and equity.” fails in its justification to why the
law relating to the trusts is totally based on equity alone. One can say that the argument that
the discretion of the courts from selecting the wide range of legal and equitable remedies so
as to meet the needs of the case, without considering the origin of the rights, exists has no
foundation in the legislation of Judicature Act yet again the counter argument comes up that
the fusion of both the jurisdictions can take place without any legislative support. One needs
to understand what Martin J. had to say that by doing so, i.e. totally overlooking the origins
of the rights under such jurisdictions, we would then assert any defence available by giving
no regard to the nature of the remedy. Martin further criticizes the stance taken by Lord Goff
in Napier and Ettrick (Lord) v Hunter 28, where the issue was with respect to the nature of an
insurer’s subrogation right, that “the task of the courts is to mould the two strands of
authority into a coherent whole” even when he examined the origins of subrogation at law
and in equity, by postulating that “the principles of equity were sufficiently flexible to impose
a charge rather than a constructive trust, which was neither necessary nor desirable.” Thus,
confirming that the courts can harmonize law and equity when and where they find it possible
by ignoring the technical differences between the two and forgetting that the separation
between them still exists. To gain more clarity, the case of Crabb v Arun 29 which deals with
the concept of estoppel is a good illustration in understanding that the unification of various
categories of estoppel by common law did not justify that they have mingled but rather that
there can be a unified doctrine free from historical anomalies. Also, understanding that equity
has exclusive jurisdiction in many cases to which there is no need of common law remedy of

25
Salt v. Cooper, [1880-1181] L.R. 16 Ch D 544.
26
Rhone v. Stephens, [1994] 2 AC 310.
27
Her Majesty’s Attorney-General v Mellington Newspapers Ltd., [1988] 1 N.Z.L.R 129 at p.172.
28
Napier and Ettrick (Lord) v Hunter, [1993] AC 713.
29
Crabb v Arun D.C., [1976] Ch D 179.

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damages as pointed out in Johnson v Agnew30 by the House of Lords by not tagging along
what the Common Wealth courts in New Zealand had set i.e. “common law damages are not
available by a breach of restrictive covenant by a successor in title.” Also, taking such
extreme view as that of this-

“to talk of the fusion of Law and Equity was to talk ignorantly. Law and Equity were two
things inherently distinct... All they could do was to secure that the suitor who went to one
Court for his remedy should not be sent about his business without the relief he could have
got in another Court.”31 This seems problematic too has even though law and equity are two
distinct jurisdictions yet such distinction is not so much inherent that if talked about their
fusion then it is termed as being ignorant. What the above quoted premise suggests is that the
mingling of two courts into one was just for administrative purpose i.e. to stop the mayhem
that the two different courts caused and that there could be no intermingling of some
substantive concepts from the two jurisdictions. As even if the cause of action has a common
law origin yet it could take from equitable remedies and vice versa in developing their
doctrines as McLaclin J says in Canson Enterprises Ltd v Boughton 32 that, “we may take
wisdom where we find it.” Like how the common law took from equity in expanding the
scope of duress and how the doctrine of unconscionability proved that both the jurisdictions
can go hand-in-hand and how even if the undue influence suggested the upper hand of equity
yet it can take from law like in case of Aquaculture Corporation V NZ Green Mussel C Ltd 33
where again although it was justifiable to award exemplary damages for breach of confidence
case as the action of defendant was so detestable that no monetary compensation could
suffice in covering the plaintiff’s injury yet the approach taken by the court was somewhat
problematic as it said that:

“For all purposes now material equity and common law are mingled or merged. The
practicality of the matter is that in the circumstances of the dealings between the partners the
law imposes a duty of confidence. For its breach, a full range of remedies should be available
as appropriate, no matter whether they originated in common law, equity or statute.’’ As it
again ignored the importance of the role the origin of such concepts plays in determining the
nature of damages to be awarded.

30
Johnson v Agnew, [1980] AC 367 at 400.
31
Hansard 3rd Series Vol.216 at 1601; Salt v. Cooper, [1881] 20 Ch D 545 at 549.
32
Canson Enterprises Ltd v Boughton, [1991] 3 SCR 534; 1991 CanLII 52 (SCC).
33
Aquaculture Corporation V NZ Green Mussel C Ltd, [1990] 3 NZLR 299 at 301-302.

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Also, the radical view that there has been a complete substantive fusion of equity and law
proposes what Roscoe Pound had observed that:

“(1) legal rules superseding equitable rules in certain cases; (2) equitable rules, or portions of
them, disappearing; (3) equitable principles becoming hard and fast and legal in their
application; (4) equitable rules becoming adopted in such a way as to confuse instead of
supplement the legal rules.”34

Thus, it is necessary to point out what Hanbury and Martin had said, that “… a century of
fused jurisdiction has seen the two systems working more closely together; each changing
and developing and improving from contact with the other; and each willing to accept new
ideas and developments, regardless of their origin. They are coming closer together. But they
are not fused.”35 What this implies is that the fusion of the two systems is not definite at the
moment i.e. such fusion in stages depends on the nature of the legal and equitable actions and
remedies sought and thus, is a progressive realization. Again, one may present the point that:

“What is contemplated is that the unified court administering the two systems may select a
remedy historically granted by the courts of common law in relation to a wrong recognised
only in the courts of equity. But whatever one calls the process, it must be recognised as a
process involving a deliberate judicially-engineered change in the law...”36

34
Pound R, The Decadence of Equity (1905) Co! L Rev 20.
35
Martin J, Hanbury and Maudsley, (Modern Equity, 13th ed., 1989), London Stevens& Sons.
36
Harris v Digital Pulse, [2003] 56 NSWLR 298 at 444.

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 CONCLUSION
This project thus first expanding upon what the author of the article intends to propose
through Henry Smith’s “opportunism theory of equity” by coming up with the ‘fusion by
diffusion’ process which gives the architectural forms to the doctrines of duress, undue
influence and unconscionability further critically analyses such propositions of the writer of
the article. Though the arguments pointed out by the writer try to go beyond the debate
between fusionists and anti-fusionists in olden times to flag the importance of the underlying
principles of equity when applied in the realm of law, but he somewhere ignores the
distinction that both the jurisdictions possess in terms of the origin and the nature of
applicability of their individual concepts. Thus, one can agree that there is some kind of
fusion between equity and common law yet we’ve a long way to go to understand the
applicability of such fusion and at the same time upholding what Professor Ashburner had to
say, i.e., “the two streams of jurisdiction, though they run in the same channel, run side by
side and do not mingle their waters.”37

37
Justice R P Meagher, Justice J D Heydon and M J Leeming (4th ed), Meagher Gummow and Lehane’s Equity
Doctrines and Remedies (2002) at 12.