briefings
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Jersey Law of Contract
A subjective question: what to do about the Jersey law of contract?
A recent plea by the Jersey Court of Appeal for greater certainty in the Jersey law of contract has highlighted differences of opinion amongst the judiciary and the need for a way forward. Now, a new judgment from the English Court of Appeal could provide support for one side of the debate.
What is it All About?
The debate centres on whether a subjective or an objective approach should be taken to contract law, particularly when it comes to setting aside a contract because of a mistake or a lack of consent when the parties entered into the contract. A subjective approach looks at what was in the minds of the parties to the contract; an objective approach looks at what an independent observer would have concluded was the case.
Why does it matter?
In most cases, it doesn’t matter which approach is taken. As the Jersey (and English) courts have said, the result is frequently the same whether an objective or a subjective approach is taken. It is the few cases where the result would be different which are problematic and where certainty on which is the correct approach would be appreciated by lawyers and anyone entering into a contract.
There is also a wider point here; to what extent should Jersey law follow modern English or French concepts? This goes to the heart of Jersey’s legal identity, as a system based on Norman customary law is adapted to modern commercial reality.
What has been said?
Over the last few decades, the approach taken by the Jersey courts has varied between objective and subjective, leading to a lack of certainty and making it difficult to know what the outcome of a case might be.
Matters recently came to a head in Booth v Viscount [2019] JCA122, where the Court of Appeal’s decision – adopting a subjective approach – was followed by an extraordinary 27-page appendix on the issue. After delivering the Court’s decision, Martin JA reviewed all the previous cases – as well as a considerable amount of legal commentary – and declared the current situation “wholly unsatisfactory” for two main reasons. First, the current lack of certainty about a fundamental principle of commercial law does not befit Jersey as a modern, developed jurisdiction. Second, making everything worse, the senior members of the Jersey judiciary are split between the two camps. The latter was illustrated by what followed: further commentary from the current Bailiff of Jersey disagreeing with several of the points Martin JA made.
Both the Bailiff and Martin JA did, however, agree that either a restatement of the law of contract or a definitive decision from the Court of Appeal or Privy Council (which is the highest court for Jersey cases) is needed to provide certainty.
What about the English case?
Coincidentally, the decision in Booth has been followed by the English Court of Appeal deciding that a subjective approach to contract law should be taken when it comes to rectifying a contract on the grounds of mistake, in FSHC Group Holdings Limited v Glas Trust Corporation Limited [2019] EWCA Civ 1361. Although Mr Booth was seeking to set aside his contract, while FSHC was seeking to rectify theirs to record the parties’ true intentions, the FSHC case raises an issue common to both situations: should the intentions of the parties be assessed objectively or subjectively? In Booth the approach was assumed to be subjective – triggering the commentary referred to above – and now the English Court of Appeal has provided further support for that approach.
What happens next?
There is something unsatisfactory about waiting for a further piece of litigation to resolve the issue. That would mean parties being willing to spend time, money and effort going through the Royal Court, up to the Court of Appeal and, inevitably, to the Privy Council. Given the small number of contract law cases that come to court in Jersey, we could be waiting some time.
The (perhaps better) alternative is a formal restatement of the law of contract. While this would not be legally binding, consulting with members of the profession and academics would hopefully result in a common view of what the position is – and potentially guidance on what it ought to be. The subjective/objective debate is not the only murky area of contract law which could be clarified, either. The issue of whether a duty of good faith can be implied into contracts looks, finally, to be resolved by the trial of the long-running Hard Rock litigation (for which see HRCKY v Hard Rock Limited and Anor [2019] JCA123), but there are other areas where certainty would be welcome.
What can parties do about it?
While we wait for a final answer, parties entering into a contract can help protect themselves by keeping detailed records of negotiations and discussions surrounding their entry into the contract. The more contextual material available – as was the case in FSHC – the better.
By Eleanor Davies, Associate