WHEN EQUITY REFUSED TO LOOK AT THE SUBSTANCE -Solomon Adeseun Esq

This is a consideration of the application in Nigeria, of the maxim Equity looks to the intent rather than the form. What is the consequence if the doctrine is not applied?

Explanation of the maxim

If parties to a transaction have reached an arrangement, the Common Law would be concerned with whether they complied with the formalities relating to that transaction. Once the formal requirements are present, the transaction would be enforced and the Common Law would not be concerned with whether its enforcement would produce any unfair result. For example, if a contract is under seal, it is effective because of that magic wand of a seal. On the other hand, the contract may be voided for no other reason than that the formal requirements were not present.

Taking the seal as an example again, there are some contracts that are required to be under seal at Law so that such contracts, even if the parties furnish consideration, would still be voided if there was no seal. A gift in a Will may fail because the appropriate words, like ‘bequest’ or ‘devise’ were not used.

However, Equity takes a more flexible view. Notwithstanding the presence or absence of any formal requirements, Equity would be concerned to finding out what the real intentions of the parties were, and give effect to that. Looking at the circumstances, if the intention of the parties appears to be a conveyance of land for example, Equity would give effect to it as such, thus creating an equitable interest in land, even if what the parties had done could not create a conveyance, properly so called at Law. The reason for the arrangement not being recognised at Law might have been due to the fact of the formality that the instrument bearing the arrangement was not under seal.

The principle was explained by Romilly, M.R., in Parkin V. Thorold[1] as follows: “Courts of Equity made a distinction in all cases between that which is matter of substance and that which is matter of form; and if it find that insisting on the form, the substance will be defeated, it holds it to be inequitable to allow a person to insist on such form and thereby defeat the substance.”

Penalties or liquidated damages?

The Courts employ the principle to relief against penalties in contracts. With the aid of the principle, the Courts would scrutinise provisions relating to minimum payments in agreements in the event of termination. The aim is to find out whether such provisions are genuine pre-estimates of loss which a promisee may suffer as a result of breach of contract. If such minimum payment is found to be a genuine pre-estimate of loss, it would be treated as liquidated damages. But if the Court finds the provision an unconscionable imposition of sanction out of all proportion to the loss suffered by the promisee, it would be ignored as a penalty. For example, where the minimum payment was set at two-thirds the value of the contract.[2]  

The Battle of Forms

Corporate bodies employ the use of printed forms in making orders for goods or in creating some other relationships. Those forms contain “terms and conditions.” Conflicts do arise as to which terms and conditions contained in the exchange of forms may be part of the contract between the parties.

Such is the case of Butler Machine Tool Co. Ltd V. Ex-Cell-O Corporation (England) Ltd[3] otherwise called the “battle of forms” case. Lord Denning M.R., held as follows: “The better way is to look at all the documents passing between the parties and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points, even though there may be differences between the forms and conditions printed on the back of them.”

On the facts of this case, the sellers made a written acknowledgment indicating acceptance of the buyers’ conditions. The buyers’ conditions did not include a price variation clause. It was held that the price could not be varied as the sellers would have wanted, in line with their own conditions.

In the earlier case of Brogden V. Metropolitan Railway Co[4] Lord Cairns LC had said: “there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description.”

Negative stipulations

In a contract of employment, a stipulation may be expressed in a negative form, whereby the employee covenants NOT to work for others. This covenant will not be enforced if its enforcement would amount to an order of specific performance of a contract of personal service.[5] In other words, the substance of the provision which Equity would look at is that the provision is forcing the employee to continue to work for this particular employer and no other, or starve.

Equity refused to look at the substance!

All the above are different expressions of looking at the substance rather than the form. The Supreme Court could have applied this principle to the case of United Bank for Africa Ltd. V. Tejumola & Sons Ltd.[6] In this case, by letter, “subject to contract,” the Appellant agreed to lease the Respondent’s property for 15 years “from the date physical possession is given to us…” Later, the Respondent suggested the 1st of May, 1982. After the date suggested, the Appellant required the Respondent to carry out further alterations to make the building suitable for its business, which the Respondent did. Finally, the Appellant required expert certification that the building was structurally sound, which the Respondent produced to the satisfaction of the Appellant. All these were at considerable expense to the Respondent. At last, the Appellant called off the transaction. The Respondent’s action for breach of contract succeeded in the High Court, affirmed by the Court of Appeal, before it was finally dismissed by the Supreme Court, holding that no commencement date for the lease was discernible in the whole transaction.

It is submitted that the Supreme Court failed to apply Equity or do justice in this case in the circumstances. Pathetically, their Lordships resorted to appealing to the Appellant to compensate the Respondent, ex-gratia. But this was a lease, the commencement of which was subject to a contingency, not the taking of physical possession as proposed originally by the Appellant but as modified, still by the Appellant and accepted by the Respondent, which was the certification by the experts as finally required by the Appellant. The day that certification was produced to the satisfaction of the Appellant should have been taken as the commencement date. Why did Equity not look at the substance and not the form?

 In the case of Okafor V. Nweke,[7] Court processes filed by a Senior Advocate of Nigeria but signed by him in the name of his firm were held to be incompetent. They were struck out on this ground alone. The merits of the application for which the processes were filed were not considered at all. On the substantial issue of justice, the Court said as follows: “The conclusion that must be reached in this matter is that the documents are incompetent and are struck out leaving the Applicants with the opportunity to present a proper application for consideration by this Court. The effect of the ruling is not to shut out the Applicants but to put the house of the legal profession in order by sending the necessary and right message to members that the urge to do substantial justice does not include illegality or the encouragement of the attitude of ‘anything goes.”[8]

If the Applicants in this case had another opportunity to present “a proper application for consideration” by the Supreme Court, the case had a disastrous effect on a great number of pending cases in the Court of Appeal, the High Courts and other level of Courts across Nigeria. Lawyers, for generations in Nigeria had been signing Court processes in that same way.[9] A great number of cases filed but signed as was done in this case were held to be incompetent, since the Supreme Court’s decisions are binding on all other Courts in Nigeria.

Consequently, given the snail speed at which the wheel of justice moves in Nigeria, cases that had been pending for five, ten years or more, were struck out on this ground alone. Indeed, some parties at the appellate level got a new ground of appeal, namely that the whole proceedings at the trial Court were incompetent since the originating processes by which the actions were commenced were not properly signed.

In SLB Consortium Ltd V. NNPC,[10] this multi-million dollar action for breach of contract was commenced in 2000. The Plaintiff was successful. It got to the Court of Appeal in 2005 and was decided in 2008. It got to the Supreme Court in 2008 where the issue of the signature on the originating process was raised for the first time. The Supreme Court entered a judgment striking out the action.

In these cases, the real disputes between the parties did not have an opportunity of being decided. Reason: the processes filed by their Lawyers were not properly signed! Attention was not paid to the learned Justice Onnoghen’s advertence in Okafor, to how the justice or the substance of the matter could be addressed.[11] Equity was not allowed to look at the substance but the substance was sacrificed on the altar of the form. [12] Many of such cases could never be decided on the merits because by the time they were struck out, the matters have become statute barred.

The only saving grace came to this area of the law relating to statutes of limitation with the decision in the case of Sifax Nig. Ltd V. Migfo Nig. Ltd.[13] This case originating in the Federal High Court was eventually struck out by the Supreme Court which decided that the Federal High Court lacked jurisdiction to entertain the case. The Plaintiff re-commenced the case in the High Court but objection was taken to the new action on the ground that it has become statute barred.

Held: “Where an aggrieved person commences an action within the period prescribed by the statute and such action is subsequently struck out for one reason or the other without being heard on the merit or subjected to an outright dismissal, such action is still open to be recommenced at the instance of the Claimant and the limitation period shall not count during the pendency of the earlier suit. In other words, computation of time during the pendency of an action shall remain frozen from the filing of the action until it is determined or abates.”

Conclusion

The maxim, equity looks at the substance and not the form is a very useful principle of achieving justice in situations in which grave injustice would have been occasioned. The application of it, in many instances have brought great relief in cases in which serious injustice would have been done. Should our Courts pay more attention to this doctrine, it will only enhance the stature of the judicial system as a machinery for doing real justice and will consequently give the lie to the contemptuous saying of unlearned men that the law is an ass.


[1](1852) 16 Beav. 59 @66-67 (as quoted by Keeton & Sheridan, Equity 2nd Ed., P. 15). See also 51 E.R. 698.

[2] See Bridge V. Campbell Discount Co. Ltd [1962] 1 All ER 385. But if the minimum payment clause was expressed in such a way that it could not be interpreted as a penalty, the Courts may allow it to stand, as they are wary of being seen to interfere with the parties’ freedom of contract or as “general adjuster of men’s bargains.” See Robophone Facilities Ltd. V. Blank [1966] 3 All ER 128.

[3][1979] 1 All ER 965 @968D-E.

[4] (1877) 2 App Cas 666 @672 (as quoted by Lord Denning in Butler, supra).

[5] Page One Records Ltd V. Britton [1967] 3 All ER 822.

[6][1988] 2 NWLR (Pt. 79) 662.

[7] [2007] NWLR (Pt. 1043) 521SC.

[8] Per Onnoghen, JSC (as he then was) @532-533H-A.

[9]The Supreme Court in Cole V. Martins (1968) 1 All NLR 161 @165 sustained Court process signed as in Okafor, supra, holding that no possible doubt or confusion had been occasioned.

[10] [2011] 9 NWLR (Pt. 1252) 317 @332-333H-A.

[11] In SLB Consortium, supra, the leading judgment of which was also written by Onnoghen, JSC, there was no longer any pretence to a consideration of justice or substance.

[12] Or even the application of such equitable principle as Ubi jus ibi remedium?

[13] (2015) LPELR 24655CA @48A-C. Followed by Central Bank of Nigeria V. Harris [2017] 11 NWLR (Pt.1575) 54CA @82-85A-H; (2017) LPELR 43538 per Obaseki- Adejumo, JCA.

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