1. The right to avoid the contract

It is commonly accepted in Caribbean legal systems that defects of the consent of a contractual party does not immediately void the contract. Defects of consent, on the contrary, enable the aggrieved party to avoid the contract, which is effective until that right is exercised. Legal systems provide for the right to avoid the contract in various ways. Some of them, inspired by the French Civil Code (Article 1.304), do not distinguish between voidness and avoidability and they provide for an action in nullity, although in cases of defects of consent only the aggrieved party is entitled to exercise this right (Article 1.304 of the Dominican Civil Code; Article 910 of the Haitian Civil Code; Article 1.253 of the Puerto Rican Civil Code; Article 925 of the Saint Lucian Civil Code; Article 1.346 of the Venezuelan Civil Code). In other legal systems, the expression “relative nullity” is related to defects of consent (Article 1.741 of the Colombian Civil Code; Article 836 of the Costa Rican Civil Code; Article 1.587 of the Honduran Civil Code; Article 2.227 and 2.230 of the Mexican Civil Code; Article 2.201 of the Nicaraguan Civil Code or Article 1.144 of the Panamanian Civil Code), due to the influence of the French doctrine, which created the concept in order to set absolute nullity against another kind of nullity (or “rescission” under some of these civil codes) restricted to the entitled parties whose interests are protected by the rule. This doctrine approach was crystallised in the Proposals for Reform of the French law on obligations of 2013 (Article 89).

For its part, English law distinguishes between void and voidable contracts, the latter being subject to the power of avoidance, so that cases of innocent or fraudulent misrepresentation entitle the aggrieved party to avoid or rescind the contract (Article 1 Misrepresentation Act 1967 or Article 2 Bermuda Law Reform Act 1977). The same applies to threats [Ting v Borelli (2010), 79 WIR 204] or undue influence [decision of the Supreme Court of Jamaica in Turnbull & Co v Duval (1902), AC 429]. The Guatemalan Civil Code (Articles 1.257 and 1.303) also uses the term “avoidability” in cases of contracts subject to defects of consent. More recently, Dutch and Suriname Civil Code considers as avoidable contracts concluded under threat, fraud or abuse (Article 3:44) or mistake (Article 6:228) and Cuban Civil Code provided that mistake, fraud and threat are causes of voidness of the contract at the request of the aggrieved party (Articles 73 y 74). Regardless of conceptual divergences, there is uniformity in the characterisation of contracts affected by defects of consent as merely voidable at request of the aggrieved party, in contrast with void contracts.

An apparently discordant note in this uniformity comes from the treatment of some forms of mistake in common law, which leads to voidness instead of avoidability of contracts. However, such discordance is more apparent rather than real: as detailed in the commentary to Article 3.4.1 of these Principles, these special cases of common mistake that void the contract are not standard cases of mistake-defect under the civil law tradition. Thus, the case of common mistake called res extincta, which happens where the object of the contract disappears before the contract's conclusion without the parties' knowledge and determines the voidness of the contract (Section 6 Sale of Goods Act of 1979; Section 8 Sale of Goods Act of Montserrat; Section 8 Sale of Goods Act of Antigua and Barbuda; Section 8 Sale of Goods Act of Bahamas; Section 8 Sale of Goods Act of Trinidad and Tobago; Section 8 Sale of Goods Act of Belize; Section 7.1 Sale of Goods Act of Jamaica), as well as cases of mistake “res sua”, which occurs where the buyer does not know that it is already the owner of the sold goods [Abraham v Oluwa (1944), 17 NLR 123], are considered in these Principles as cases of initial impossibility (Article 3.1.3). Therefore, the right to avoid the contract provided in this Article does not apply to these cases. Likewise, the case of mutual mistake, where each party operates under a radical misunderstanding concerning a contract or object, is not considered in this Principles as a case of defect of consent giving a power of avoidance, but as a case of absence of consent (Article 3.1.1).

A more precise characterisation of hypotheses covering each defect of consent that would entitle a party to avoid the contract is found in the description of these defects in Section 4 of Chapter 3 of these Principles and, likewise, in Article 2.3.6 in relation to contracts concluded by the agent in cases of conflict of interests with the principal.

2. Avoidance by notification

There are two different legal traditions in the Caribbean legal systems concerning the manner in which the right to avoid the contract is implemented.

On the one hand, tradition inspired by French law considers that a contract cannot be avoided by a mere notification, but requires a judicial action brought by the aggrieved party in a more or less short time, which ends with a judicial decision stating the voidness of the contract. Besides Article 1.304 of the French and Dominican Civil Code, this approach is followed by Cuban Civil Code (Article 114) and Venezuelan Civil Code (Article 1.346), which establish a limitation period for the avoidance action of five years; Colombian Civil Code (Article 1.750), Costa Rican Civil Code (Article 841), Honduran Civil Code (Article 1.593), Nicaraguan Civil Code (Article 2.208), Panamanian Civil Code (Article 1.151) and Puerto Rican Civil Code (Article 1.253), which provide for a period of four years; Guatemalan Civil Code, which provides for a period of two years in cases of fraud and mistake (Article 1.312) and of one year in cases of duress or serious threat (Article 1.313); and Mexican Civil Code, which establish periods of sixty days in cases of mistake and six months in cases of duress (Articles 2.236 y 2.237). A rare case is found in Haitian Civil Code, which provides a period of ten years (Article 1.089), as well as Saint Lucian Civil Code (Article 2.119).

On the other hand, under the common law tradition the power of avoidance is exercised by a mere notification of the will to avoid the contract addressed to the other party without delay, although the time spent in negotiations to achieve an agreement is not considered [Erlanger v New Sombrero Phosphate Co (1978), 3 App. Cas. 1.218]. Likewise, the Dutch and Suriname Civil Code (Article 3:49) allows a-non judicial avoidance, but the period is extended for three years (Article 3:52). This model of non-judicial avoidance is also followed in international texts on contract law harmonisation (Article 3.2.11 UP; Article 4:113 PECL; Article II-7:209 and II-7:210 DCFR; Article 52 CESL).

The OHADAC Principles have preferred a non-judicial system of avoidance for many reasons. First, the self-monitoring system can help reduce procedural expenses and increase legal certainty by putting an end to the uncertainty specific to situations of avoidability. Moreover, it reinforces the position of the aggrieved party, given that the voidness is effective right from the notification and the aggrieved party has therefore the right to obtain the restitution of whatever has been performed and, in case of delay, to compensation. Furthermore, the system of non-judicial notification transfers the burden of litigation to the other party, given that once the avoidance is notified, if the other party wishes to demand the performance, it is obliged to sue before the courts and prove the validity of the contract. Lastly, as analysed below, the non-judicial avoidance system is perfectly compatible with legal systems that provide a mandatory judicial system of avoidance.

Obviously, the fact that the avoidance could be carried out by serving notice to the other party does not mean that the question of the ineffectiveness of the contract does not need to be resolved before a court or arbitral tribunal. These Principles take into account the fact that parties may disagree on the presence of a defect of consent. In this respect, without prejudice to the effectiveness of the declaration of avoidance, the choice of the Principles does not entail the parties' waiving of the right to act before courts in order to declare the contract as valid and enforceable because it is not affected by a defective consent under the applicable law or the agreement by the parties resulting from these Principles chosen by the Parties.

3. Period to exercise the right of avoidance

The OHADAC Principles propose a rule on the right to avoid the contract that aims as much as possible to reconcile the common law tradition, which allows avoidance by notice, and the civil law tradition, also widespread in Caribbean countries, which require a judicial action within a determined period. In this sense, on the one hand avoidance by non-judicial notice is possible; on the other hand, there is a determined period to exercise such a right, so that imprecise formulas that do not favour legal certainty, especially in a context of legal diversity, are disregarded. In order to establish the period to exercise the right to avoid the contract, the Principles have had to disregard the use of wordings such as “within a reasonable time, having regard to the circumstances” (Article 3.2.12 UP; Article 4:113 PECL; Article II- 7:210 DCR), which are not very compatible with or legal traditions.

However, the requirements of swiftness in international contracts as well as the need not to excessively extend the inherent uncertainty of avoidable contracts mean that the limitation period must be shorter than that envisaged in civil law systems. That is why the period proposed in these Principles is six months, which is the same as provided in cases of avoidance due to threat in Article 2.237 Mexican Civil Code. Likewise Article 52 CESL provides a period of six months in cases of mistake and one year in case of fraud, threat or abuse.

With respect to the time as from which the time available for exercising the right of avoidance is computed, the Principles take into account a common denominator in Caribbean countries. For example, the computation of the period to avoid a contract due to threat begins generally when the threat ends (e.g. Article 1.750 of the Colombian Civil Code; Article 841 of the Costa Rican Civil Code; Article 1.313 of the Guatemalan Civil Code; Article 3:52.b of the Dutch and Suriname Civil Code; Article 1.593 of the Honduran Civil Code; Article 2.237 of the Mexican Civil Code; Article 1.253 of the Puerto Rican Civil Code; Article 2119 of the Saint Lucian Civil Code; Article 1.346 of the Venezuelan Civil Code).

A common approach in case of mistake or fraud seems more controversial. Caribbean legal systems have three different periods that can determine the beginning of the period to avoid a contract. For some legal systems, this period is when the aggrieved party discovers the truth (Article 1.304 of the French and Dominican Civil Code; Article 1089 of the Haitian Civil Code; Article 2.236 of the Mexican Civil Code; Article 2.119 of the Saint Lucian Civil Code; Article 1.346 of the Venezuelan Civil Code and, more recently, in Dutch law, Article 3:52 Civil Code). In other legal systems, the period begins on the day the contract is concluded (Article 1.750 of the Colombian Civil Code; Article 841 of the Costa Rican Civil Code; Article 1.312 of the Guatemalan Civil Code, Article 1.593 of the Honduran Civil Code and Article 2.208 of the Nicaraguan Civil Code). Finally, in other cases the time of performance is preferred as the first day of the period (Article 1.151 of the Panamanian Civil Code and Article 1.253 Puerto Rican Civil Code). Even some civil codes provide that avoidability is not subject to any limitation period, as an exception to the general rule (Article 843 of the Costa Rican Civil Code; Article 1.595 of the Honduran Civil Code; Article 2.210 of the Nicaraguan Civil Code; Article 1.153 of the Panamanian Civil Code); such an approach is also implied in some systems that establish the moment of the conclusion of the contract as the beginning moment of limitation periods for contracts. For its part, in common law systems the right to avoid the contract is preserved while the aggrieved party does not know or should not have to know the truth in cases of fraudulent misrepresentation [Aaron's Reff Ltd v Twiss (1896), AC 273]. However, the point of view changes in cases of innocent misrepresentation, because the time passed after the contract's conclusion may be an obstacle to avoid the contract, even if the aggrieved party has not known the truth beforehand [Leaf v International Galleries (1950), 2 KB 86].

To overcome these differences, the Principles have considered that the beginning for the computation of the limitation period is the moment when the aggrieved party knew or should have known the truth. This rule is shared by the international texts on contract law harmonisation (Article 3.2.11 UP; Article 4:113 PECL; Article II-7:211 DCFR; Article 52 CESL). This is the solution that best protects the aggrieved party, because this party may exercise its right to avoid the contract from that moment. The same approach justifies the beginning of the period when undue influence ceased or, if it has not ceased, from the moment when the aggrieved party could freely act. In cases of conflict of interests between the agent and the principal, the initial moment is when the principal knew the conclusion of the contracts as well as the conflict of interests. The occasional delay of this moment in relation with the moment on the contract's conclusion is a source of uncertainty, which is in some way compensated through a short limitation period of six months, within which the aggrieved party must notify its will to avoid the contract to the other party.

4. Impact of international mandatory rules

The OHADAC Principles cannot prevent the application of national overriding mandatory rules on the right to avoid the contract (paragraph III of the Preamble). In exceptional cases, a national court may consider the overriding character of its rules or of the rules of the law applicable to the contract or even of a third state, establishing the mandatory need of a judicial procedure of avoidance, which cannot be waived. The choice of the Principles is not irrelevant in these cases. Both parties have recognised the effects of the avoidance notified within a period of six months, but this does not prevent from taking legal action for avoidance afterwards, within the mandatory period provided by the domestic law which is considered as overriding mandatory rule.

Example: A contract between a Colombian firm and a Cuban firm is submitted to Colombian Courts and to the OHADAC Principles. Colombian Law is also applied to the contract according to Colombian private international law rules. One of the parties argues that it agreed under mistake. According to Article 3.5.1 of the OHADAC Principles, this party may avoid the contract by notice to the other party within six months from the moment when it knew or should have known of the mistake. The notification implies the effects of avoidance set out in the Principles, insofar as they are compatible with the Colombian rules if they are considered as international mandatory rules. In that case, according to the Article 1.750 of the Colombian Civil Code and providing that mistake justifies the right to avoid a contract under Colombian law, the aggrieved party could sue Colombian courts to avoid the contract in a period of four years after the conclusion of the contract, even if more than six months have passed since it knew or should have known of the mistake.