English judicial thinking bridles at the suggestion that fairness has any role to play in the legal analysis of commercial transactions. Rather, English judges willingly sacrifice fairness at the altar of contractual certainty, fulfilment found in simplicity, however unreal. Sir Peter Millett did no more than reflect this uniform judicial mindset when he wrote: “[i]t is of the first importance not to impose fiduciary obligations on parties to a purely commercial relationship...”. But a glimpse at other jurisdictions, even those that share our common law traditions, reveals that his outrecuidance has more than a whiff of parochialism. Sir Anthony Mason was able to say: “it is altogether too simplistic, if not superficial, to suggest that commercial transactions stand outside the fiduciary regime.”

An excursion outside the common law world reveals that a different approach to reality does not destroy the foundations upon which commerce depends for its success. Thus, under German law it is quite easy to establish that a bank has entered into an advisory relationship with a customer (Federal Court judgment of 6 July 1993 XI ZR 12/93 BGHZ 123, 126 “the Bond decision”). The Bundesgerichtshof, in connection with the sale of investment products, observed that: “….banks regularly take on the role of an investment adviser and do not act as a mere placing agent”. The result under German law is that for sales of investment products a non-advisory relationship will be an exception rather than the rule. Breach of duty is analysed in terms of conflict of interest*, to English eyes a recognisably fiduciary framework. The German position is the diametric opposite of the default position in English law. Ordinarily, in the absence of some special circumstance, the duties of an adviser are not owed under the bank-customer relationship (e.g. Springwell Navigation Corp. v JP Morgan [2008] EWHC 1186). The contrasting views reflect radically different perceptions of commercial reality. One is left wondering why the starting premise is so deeply rooted in English law, it being inherently improbable that German and English banks adopt fundamentally different roles in recommending latently toxic products to their customers. It is suggested that the difference is judicial attachment to myth, dignified as policy, as important in law as myths and belief systems are to societies. But there are good myths and bad myths, according to how these assist in explaining, understanding and dealing with reality. Professor Joanna Benjamin (Emeritus Professor of Law at the LSE) has said that policy will always trump justice in the individual case. So myth, in the guise of curial belief, may readily trump justice in the particular. These issues are possibly of more than theoretical significance. The World Bank currently ranks the United Kingdom as 36th for enforcing contracts, as compared with Germany at 13th.

A Batemanesque response may be elicited by the title similar to that provoked by the question of whether it is possible to have too much diversity (as distinct from true pluralism, marked by what Isaiah Berlin called commensurability – Charlie Hebdo exhibits its absence); evidence of contemporary heresy, or perhaps an analogue of “un-Soviet thinking” described by Solzhenitsyn (who provocatively but presciently predicted that liberal democracy would not follow Soviet communism). But all institutions decay and to think otherwise is to subscribe to the naïve conventional expectation that progress is both continuous and necessary, a disappointment to the Edwardians. Sometimes the failure of public policy is easy to see. The wreckage of foreign policy is revealed in instability and failed states.

Limited transparency in legal policy

The audit of war is exacting and failure of policy stark. Blame can be traced from the outworking of events and the all too visible failure of policy against stated objectives. Those responsible if required may be held to account. The outworking of bad judicial decisions and flawed legal policy is less transparent. The harm caused by the radical new policy announced in Mitchell v News Group Newspapers was massive but diffuse, its extent incapable of evaluation in the absence of painstaking research and likely of scant interest to the wider public. That the decision was animated not least by economic considerations, and prioritised efficiency over justice in the particular case, resonates at a time when civil justice is increasingly privatised. By treating those who conduct litigation as though incompetent idlers in the lower sixth Mitchell revealed how remote is the Court of Appeal from those engaged with the reality of litigation with its many unpredictable uncertainties, as distinct from the abstract application of poorly drafted rules. Recognition that the new policy had disastrous consequences, unforeseen but readily foreseeable in an avalanche of satellite litigation, was impliedly given in Denton. That did away with the severe policy of exceptionalism and put the onus, but more tellingly risk, on the respondent. Denton changed the game-changer and pretty well restored the status quo ante. But Mitchell displaced wise Bowen LJ’s dictum that courts exist not for the sake not of discipline but of justice. It had stood for more than a century.

A corollary of the low level of transparency and accountability in legal policy is that judges rarely emerge from the shadows of the quotidian grind of applying rules to particular facts onto the wider public stage. Those that have done so have tended to exhibit high order moral courage and independence. Giants of the common law, those Hegel might have called world historical individuals of liberalism, include Lords Mansfield and Atkin. The brave, if legally narrow, decision in the Somerset case laid the groundwork for the abolition of slavery but it placed Mansfield in the very eye of the storm of vested interests. The assumed narrow cultural and religious conspectus of Lord Atkin’s speech in Donoghue v Stevenson, with its explicitly moral and biblical underpinnings, remains more eloquent of dignity and respect for individual autonomy than any amount of synthetic morality derived from mere sentiment. It remains the substrate of negligence across the whole common law world. That is to say nothing of Atkin’s courage in his dissenting speech in Liversidge v Anderson, since vindicated, his being unwilling to embrace the merely expedient. The House of Lords’ decision in A v Secretary of State for the Home Department [2005] 2 AC 68, reversing the Court of Appeal (Neuberger LJ dissenting) on admissibility of evidence tainted by suspicion of torture, repays re-reading.

What is public morality?

Law does not track public morality systematically, but they are interwoven. In Smith New Court Securities v Scrimgeour Vickers, Lord Steyn said that to a large extent the law is simply formulated and declared morality. If so, it is important to know what this morality is, a requirement recently acknowledged in a public lecture given by the President of the Family Division in October 2014. Sir James Munby P posed the difficult question: “… we live, … in what for family lawyers are times of profound and unpredictable change, what are the tools which we must bring to bear? Once upon a time the answer would not have been too difficult. The perceived function of judges was to promote virtue and discourage vice and immorality, and by and large, everyone knew, or at least thought they knew, what was virtuous and what was not. But the last few years have marked the disappearance in an increasingly pluralistic society of what until comparatively recently was in large measure a commonly accepted package of moral, ethical and religious values. So what is the measure? What is the judicial lodestar?” His gnomic answer: “[t]o the common lawyer the answer might be simple: the view of the man on the Clapham omnibus or the woman on the Northern Line tube. I would not differ from that…”. But what, if anything, does this actually mean? Perhaps the Kilmuir rules had something to commend them. Morality, unlike prudence, tends to be received rather than innate, and few work out their moral positions from first principles. Citing Lon Fuller, the Hon. Paul Finn sceptically has remarked that “when law is compared with morality, it seems to be assumed that every one knows what the second term of the comparison embraces”. It’s a fair bet that the man on the Clapham omnibus would think torture, in some, albeit rare, circumstances is justified.

Whether Sir James Munby was serious or with a canard provoking his audience, possibly travellers on the bus now crowded with the moral as well as the prudent, is not known. But taken at face value his answer is unsettling where one of the most pressing public issues is how to make ethical citizens. On one analysis the financial crisis was simply ethical failure on an industrial scale. You don’t need to be an ethical nitpicker to think credit default swaps on sub-prime mortgage debt might not be what Molesworth would have called a GOOD THING.

Good faith and the problem of knowledge

In truth judges do not seem to take their lead from public moral perceptions. Caveat emptor is early learned by law students, but as Sir Bernard Rix has suggested in recent LIBOR litigation (Graiseley Properties Ltd v Barclays Bank plc and Ors.) its contemporary ambit is unclear. Wills J.’s statement in Allen v Flood: “any right given by contract may be exercised against the giver by the person to whom it is granted, no matter how wicked, cruel or mean the motive may be which determines the enforcement of the right” would strike Sir James Munby’s travellers as decidedly anachronistic. One would have to be particularly dull-witted not to notice that the public appetite for a Darwinian survival of the fittest is much abated from Victorian times. Fairness in the treatment of others informs much public discourse, but the same is not true of law. It is remarkable that English judges in general continue, Canute like, to resist that an obligation of good faith (an analogue of fairness) be implied in the formation or performance of contracts. In this respect the law of England and Wales is curiously, but determinedly, out of step both with most of the common law world and also continental civil justice systems. The legal bogeyman is contractual uncertainty, a cause of insomnia to judges second only to floodgates. In England and Wales it is expedient that certainty be promoted at the expense of fairness and individual justice. Judicial enthusiasm for this, at almost any price, is illustrated by the recent discovery by the Court of Appeal of the jurisprudentially doubtful doctrine of contractual estoppel (Peekay v ANZ Banking Group [2006] 2 Lloyd’s Rep 511) the pernicious effect of which was described by Professor Gerard McMeel in this magazine’s April issue. The legal consequence of so-called “basis clauses” found in this particular Pandora’s box was highlighted in Crestsign v Natwest and RBS [2014] EWHC 2882. The deputy judge held that the banks had no liability for seriously negligent advice given to Crestsign in connection with a recommended regulated financial product. Natwest and RBS denied that any advice had been given. As it happened, it didn’t matter that the banks’ evidence on this was rejected because the parties had contracted under a basis clause, Alice in Wonderland-like, that no advice was given. The judge said that the term would not have satisfied the test of reasonableness under UCTA 1977 had it applied. But because the basis clause gave rise to a contractual estoppel (not an estoppel of a kind known to law prior to 2006, requiring neither reliance nor detriment) with one bound it leapt the constraints imposed by parliament under UCTA (only a clot would now draft an exclusion clause). Further, having this effect, the term and decision subvert the provisions of the regulatory regime under the FCA’s Conduct of Business Sourcebook. These prohibit reliance upon contractual terms that exclude or restrict duties imposed by COBS – the mainspring of which is treating customers fairly. Following the effective abolition of equity as an independent source of legal obligations, we have moved from the length of the Chancellor’s foot to common law sclerosis with scarcely a pause. Since Peekay it is no wonder that bank standard-form contracts have been covered like measles in basis clauses. Whether, by whom and how they may be put back in their box remains to be seen. Judicial documentary fundamentalism may be found, eventually, to be as limiting in interpreting reality as its other forms. (When the great Patrick Devlin lamented that there was not much room for further development in the common law he cannot have envisaged the discovery of contractual estoppel.)

While understandably recourse to documentary legal certainty serves as a kind of judicial comfort blanket in avoiding distressing reality, it’s worth remembering that when in 1938 Freud was permitted to leave Vienna for London he was required by the Nazis, famously punctilious form-fillers, to sign a document confirming that he had been well treated by the Gestapo and had been free to pursue his activities in every way he desired. His books had been publicly burned (his elderly sisters later murdered). The authorities were astute that the record should conform to their version of truth. The Genesis myth, that continues to endure in explaining reality, holds that we are corrupted by what we know. Lord Atkin for one would have recognised that. Whether or not the same is true of Sir James Munby’s travellers, or those putatively guided by their moral perceptions, is at best moot.

*The author gratefully acknowledges Dr. Peter Clouth, Rechtsanwalt, Frankfurt, as source of these propositions articulated in the joint seminar Current cases and regulatory approaches to financial mis-selling in England and Germany given by the International Committee of the Bar Council with the Deutscher Anwaltverein with its Arbeitsgemeinschaft Bank-und Kapitalmarktrecht, Frankfurt 19 February 2015. Any errors are the sole responsibility of the author.

Contributor Paul Marshall, No5 Chambers