Maps, Methodologies and Critiques: Confessions of a Contract Lawyer

In the foreground, as for all commentators on contract law, there have been a number of doctrinal issues that have captured my attention – particularly, doctrines that relate to unfair terms, to third party rights, and to good faith. However, I can see that, as I have addressed these doctrinal issues, I have been making a number of seemingly rather different essays in my attempt to take the discussion beyond first base. The terms in which I now characterise these essays are not necessarily the terms that I would have used had I been asked at the time of writing to explain what I was doing. This contribution, as I have said, is a confession of uncertainty – and, even with the benefit of the opportunity to retrace one’s steps, I am not at all sure that I can give a wholly satisfactory account of my research activities as a contract lawyer.

Stated shortly, the essays to which I have referred focus on the following matters: the internal coherence of contract doctrine;⁸ the ideologies that drive adjudicative practice and the substantive ideologies of contract law;⁹ the rationality of contract doctrine (and its judicial administration);¹⁰ the underlying ethic of contract law;¹¹ the fit between doctrine and business organisation and practice;¹² the nature of consent-based contractual obligation;¹³ the mission of protecting reasonable expectations;¹⁴ and contract law in a larger regulatory environment.¹⁵ If we treat the first of these essays as taking up a particular aspect of the rationality of contract doctrine, then we have seven pathways to consider, each leading us on beyond first base and each claiming to illuminate our understanding of contract law.

II.  AN IDEOLOGICAL UNDERSTANDING OF ADJUDICATION AND OF CONTRACT LAW

In the 1970s, John Griffith published The Politics of the Judiciary, one of the few law books in Fontana’s list. The book sold well, going rapidly through a number of new editions, and Fontana was persuaded that it should publish a series of titles on the core law subjects (the ‘Understanding Law’ series as it was to become). When I was commissioned (with John Adams) to write the contract law title, in the spirit of Politics, I took the brief to be to expose the underlying values of the law. Quite how the ideologies of contract law – the ideologies of adjudicative formalism and realism, together with the substantive ideologies of market-individualism and consumer-welfarism – emerged in the writing is too long a story to tell. Suffice it to say that we viewed it as a fairly primitive map that would help readers to understand the configuration of some of the key values that lie below the doctrinal surface in this area of the law.

How solid is the former claim? In retrospect, it seems to me that the claim is reasonably robust and enduring insofar as it asserts the significance of the formalist/realist axis in relation to the adjudicative enterprise. For, any account of the Rule of Law surely will specify the extent to which judges are required to follow the principles established in the case law, as well as setting the limits to judicial result-orientation. Accordingly, to map the position of particular adjudications relative to these indicators is to take one’s bearings from some markers which, to put it at its weakest, are generally recognised to be fundamental to notions of legality.

By contrast, the claim as it relates to the axis of market-individualism and consumer-welfarism seems to be, if not ephemeral, at any rate less enduring. The map sketched in Understanding Contract Law was primitive. Any doctrinal feature or any decision that did not fit with classical market-individualist thinking was treated as a manifestation of consumer-welfarism. At the time, because so many of the key cases were consumer disputes, this did not seem to be a serious objection. However, during the last 20 years, there has been a reworking of the commercial law of contract that invites a fresh drawing of the ideological lines. In the light of these doctrinal developments, we can now see that the critical question is: how far should the law of contract be understood as having the function of rigidly prescribing the rules for the market as against responding flexibly to the practices that give particular markets their distinctive normative identity?¹⁶ Meanwhile, on the consumer wing, the law retains strong protective welfarist instincts.¹⁷ However, the imposed ‘welfarism’ that protects consumers is rather different to the welfarist co-operativism that the law – shaking off its attachment to a strict individualist view – is now ready to recognise in some commercial relationships and business contexts. To facilitate a mapping that does justice to (i) the different assumptions about the function of contract law and (ii) the complexity of the transactional ethics that underlies this part of the ideological framework, some considerable regrinding of the lens is required. Still, this is not necessarily a fatal blow to this kind of understanding – it is simply accepting that the lens might need to be adjusted if the pattern is to be brought clearly into focus.

III.  THE RATIONALITY OF CONTRACT LAW

A promising starting point for moving beyond first base is the widely shared idea that the law aspires to be a rational enterprise. This offers three attractive, and seemingly straightforward, critical angles on the law and its administration; and a fourth that is far more problematic. Let me start with the three (apparently) easier critical angles.

If the law is to be rational, this surely implies that:

On closer inspection, however, each of these easy angles is more difficult than it seems. The first needs to be able to distinguish between flat contradiction and a tension between competing principles; while examples of the former are relatively rare, examples of the latter are legion – but not so obviously irrational. With regard to the second, although the casebook of modern contract law is littered with examples of courts bending the law and violating the requirement of congruence, some would defend this in the name of the interests that the courts have sought to protect (particularly the interests of more vulnerable parties). So, to cash this critique, we need to have some way of measuring the rationality of bending the law for well-intended purposes. The third critical angle asks whether the law is instrumentally effective (relative to its intended purposes). While, as I will argue in due course, the modern law of consumer protection is highly regulatory and comes with a clear declaration of intent, it is far from clear what the general body of contract law is designed to achieve. To ask the innocent question, ‘What precisely is contract law for?’ is not so stupid.²⁰

This brings us to the fourth possible rationality critique. Here, the question is whether the law of contract has the content that it is rationally required to have. In my case, armed with my background jurisprudential convictions, I would ask whether it has a suitable agent-respecting content. However, this kind of critical project, as I have indicated already, takes us into deep water. Moreover, there are many who simply reject the idea that the law is rationally required to have any particular content – instrumental rationality is as far as we can go.

Having said all of this, it seems to me that an interrogation of the rationality of the law remains one of the more attractive options for getting beyond first base. If we are committed to the idea that the law should aspire to be a rational enterprise, we need to be clear about what this aspiration means and just how far the law of contract lives up to the ideal.

IV.  THE UNDERLYING ETHIC OF CONTRACT LAW

Notoriously, the classical common law of contract embeds an ethic of self-interested dealing. In one of the great cases of the last century, that of the Suisse Atlantique Societe d’Armement SA v NV Rotterdamsche Kolen Centrale,²¹ we see just how powerful this underlying ethic is.²² There, the claimants, the Swiss owners of the motor vessel, General Guisen, argued that they had not received the performance that they reasonably expected from the defendant charterers, a Dutch company. The charter in question, a two-year consecutive voyage charterparty, had been entered into in December 1956. It was accepted by the defendants that, in breach of contract, they had taken considerably more time than the charter permitted for loading and discharging the vessel in port. However, the charter provided that, in these circumstances, the charterers should pay damages at an agreed rate of $1,000 per day to the owners; and these demurrage payments (in total some $150,000) had been made and duly accepted by the owners. Effectively, so far as Mocatta J and the judges in the Court of Appeal were concerned, that was that – there were a number of breaches of the express terms of the charter, the damages agreed under the contract had been paid, and the owners had been properly compensated.

There was, however, rather more than this to the owners’ claim that they had not received the performance that they reasonably expected under the charter. It was the owners’ contention that the charterers had deliberately taken their time with loading and discharging the vessel because it made economic sense for them to pay demurrage at the agreed rate rather than pay the freight rates set by the contract. It was not altogether clear why the charterers found themselves in this position; but a plausible view is that this reflected the way freight rates had moved at that time, first moving up when the charter was entered into (because of the closure of the Suez canal in the previous month) and then down (once the Suez canal reopened in April 1957). At all events, the claimants argued that this strategic conduct by the charterers meant that, instead of some 14–17 voyages that might reasonably have been expected, there were only eight transatlantic voyages during the period of the charter. This, they argued, was in breach of an implied term for cooperation and was worth some $580,000 (if 14 voyages) – $875,000 (if 17 voyages) in damages.

As represented before their Lordships, although the breach was now upgraded as possibly repudiatory and fundamental, the claim was still essentially that the self-serving conduct of the charterers breached the implicit cooperative norms of the contractual relationship. As Lord Reid remarked:

So, even though the claim was now dressed up in different doctrinal language, in substance it was the same; the Law Lords were fully aware of the essential nature of the complaint; and like the courts below, they did not see any merit in it. For the Law Lords in the mid-1960s, it was perfectly natural to assume an ethic of self-reliance as the default position for contract law.

Before the parties have entered into a contractual relationship, the classical view is that they are permitted to deal with their cards close to their chests. Again, it should be emphasised that nothing in the classical law requires parties to deal in this manner. Hence, the substantial empirical evidence that highlights a cooperative approach to contracting in many business communities does not of itself point to a defect in the classical law. To the extent that the classical law is prescriptive, it is merely in the default ethic that it assumes. Nevertheless, that default position is potentially very significant. So, for example, in Smith v Hughes,²⁶ Lord Cockburn CJ famously said:

Then, in Walford v Miles,²⁸ it was Lord Ackner’s turn to emphasise that, in the negotiating stage (covered by an adversarial ethic), neither side owes anything to the other. A duty to negotiate in good faith, Lord Ackner asserted, would be ‘inherently repugnant to the adversarial position of the parties’.²⁹ Notice, though, Lord Ackner is not saying that adversarial dealing is inherent to the very idea of contract; it is simply that this is the legal default position for the regulation of negotiations.

Once parties are in a legal relationship with one another, we might expect the default position to change somewhat; the parties, after all, are no longer ‘strangers’. However, if one side is in breach, it is perhaps understandable that the extra-contractual default should be restored. At all events, the classical view is that, where one party is in breach of contract, then the innocent party may legitimately take up any of the legally available options irrespective of whether this is for self-serving economic advantage – in other words, self-reliance is once again the default ethic. One of the clearest examples of this approach is Arcos Ltd v EA Ronaasen and Son³⁰ where the Law Lords unanimously ruled that sellers who failed to deliver goods corresponding precisely to the contractual description had no cause for complaint if, on a falling market, buyers then rejected the goods purely for their own economic advantage. According to Lord Atkin:

This brings us back to the Suisse Atlantique case itself. Now, on the facts, this is different from the negotiation cases because the parties are in a contractual relationship; and it is different from cases like Arcos because the complaint is made, not by the party in breach, but by the innocent party. If we think that a plea for cooperation is much less attractive when made by a party in breach (albeit a costless and trivial breach), then cases such as Arcos will seem to make some sense. However, where the plea comes from exactly the opposite direction, it is not so obvious that the classical default makes sense. On the face of it, what is so striking about the Law Lords’ position in Suisse Atlantique