Justifying an expectations approach

My thesis is that parties to symbiotic contracts (indeed all contracts) have expectations which can and should be enforced by the State. Insofar as they are necessary to the success of these contracts such expectations should be respected as a necessary incident of a presumption that contracts are made to be performed. Being joined in a “common enterprise” parties “engaging in a contractual relation A and B become no longer strangers to each other”. Voluntarily creating expectations, an expression of individual liberty, carries with it an obligation not to dismantle those expectations without the consent of the affected party.² Contract law should, therefore, protect the reasonable expectations of autonomous parties who have voluntarily created contractual rights, whether commercial or non-commercial. Accordingly, I suggest that when symbiotic contracts threaten to break down, a mutual duty to cooperate may well reinforce the mutual or symbiotic nature of the contract and provide courts and parties with options to deter, manage or prevent breakdown.^[1]^{^[2] ^[3] ^[4]}

This rights-based claim is coupled with an instrumental purpose,³ or social policy, that contract law can, should and does encourage exchange relations, in order to ensure that the bargains parties make can be fulfilled, in the light of prevailing circumstances and changing realities. Exchange relations tend to enhance individual and societal welfare and enrich individuals and society, notwithstanding that rights created should be (and are) enforced even if they do not have this effect. Emphasising that contract does not need trust Dori Kimel describes contract law as making arms-length commerce possible by providing “a modicum of assurance or a safety-net of sorts in case of an unforeseen breakdown of the relationship”.

I make two observations on instrumental claims, intending to answer two of Stephen A Smith’s criticisms of what he refers to as utilitarian theories.^[5]^{^[6]} Smith says that explicit consideration of the effects of judicial rulings on commercial activities is not “in the main" the way judges reason.^[7] Jonathan Morgan says, correctly, that “Great Judges have consistently kept the needs of commerce before them”^[8] and refuses to defend the opposite case “in detail” since “any English contract lawyer would recognise the truth in it”. ^[9]^{^[10] ^[11]} By way of example, and one could fill a book with examples, as Lord Wright reminds us, there is an instrumental commercial thread in judicial thinking: “Businessmen often record the most important agreements in crude and summan' fashion ... It is, accordingly, the duty of the court to construe such documents fairly and broadly.” In a famous phrase in the Antaios Lord Diplock observed that: “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense”. As Lord Tomlin advocated in Hillas v Arcos, the law should not be a “destroyer of bargains”; which also applies to the parties.^[12] This is not new. In 1898 Lord Herschell observed that provisions should be “construed in a business fashion ... in the way businessmen would interpret them”.^[13]

The second of Smith’s criticisms is stronger and that is that utilitarian theories inevitably mean that individual interests are subverted, wrongly, to “broader social goals".^[14] When he makes this criticism of economic efficiency-based approaches, he is correct, as these claims mean that “remedies are awarded not in order to do justice between the parties, but to induce others to enter contracts in the future”. ² This would be a desirable side effect but it should not be the purpose. The individual liberty in focus is the freedom to create contractual rights. If the law supports the creation of those rights, by analysing them properly, in accordance with party intention, and enforces them directly or indirectly that seems to me to be a tool of social policy directed immediately at the promotion of individual liberty. The argument can be extended by pointing out that enforcement is a public event. Courts are visible and their discussions are public and reported. In promoting the liberty' of one party (or two), courts will demonstrate to others that these liberties exist and will be protected and fostered, creating confidence for putative exchangers to enter the arena. Individual rights are not sublimated to the broader social goal, rather they create the landscape which is represented by that broader social goal.

Catherine Mitchell, Jonathan Morgan and Hugh Collins take a similar line on contract law’s purpose in their key works. Catherine Mitchell, in a subtle and nuanced work, which asks all the right questions, positing misalignment of expectation and law, says that a claim that there should be alignment “cannot be assessed without considering larger questions concerning how contract law best facilitates commerce”, inferring, inevitably, that that is the purpose of contract law.^[9]^{^[16] ^[17] ^[18] ^[19]} In a sweeping, holistic and masterful exposition of the world of contract, Hugh Collins asks us to consider “what kinds of laws and legal institutions are good for commercial transactions, and what sorts of legal regulation are efficient and effective in retail sales to consumers". Jonathan Morgan opens his energetic and coruscating work, in which one is sometimes unsure whether the bludgeon or the rapier is being utilised, advocating a “minimalist” law of contract with one of three theses being that the law’s purpose is “to provide a suitable framework for trade”. ‘

Lord Steyn makes a similarly clear claim - that the “prime function of the law of contract, ... is to facilitate commercial dealings”. Richard Austen-Baker asserts that the law of contract is “about” doing business.^[20] In a wide-ranging historical review, Stephen Waddams says that courts have “often taken account of social economic and political considerations”.^[21]

Although I agree that contract law is “a tool of social policy”,^[22] I am not convinced that judicial aims comprise the enabling of exchange relations. Much contract law is policy based, and much policy is obscure. Some is technical and nebulous, some illogical. In other words, the instrumental account does not fit the legal rules, unless it can be shown that these policy-based or technocratic rules are truly underpinned by a desire to reinforce party' intention. It is hard to think of a defence based on party intention for rules which, for example:

• Allow courts to analyse a document for the purposes of determining whether a contract has come into existence but debar the court from using the same document to interpret the contract.
• Debar courts from using pre-contract documents not incorporated into the contract even when those documents make the meaning of the contract “crystal clear”.
• Claim that in-contract decision-makers suffer from a “clear conflict of interest”.
• Morph open ended provisions such as to “co-operate with each other in good faith and ...” into specific, narrow provisions, stripping them of much contractual power.

Judges often speak of the need to make contracts effective or workable. They rationalise choices between competing, potentially equally meaningful outturns,⁵ and emphasise business common sense and business efficacy. It would be improper and misleading to say that judges do not mean what they say.^[23]^{^[24] ^[25] ^[26]} But this is not all they say, and some rules appear to bespeak the primacy of legal policy or elevate judicial comfort over party intention As Aditi Bagchi argues, the internal point of view must also be defended by showing that judicial reasons could be accepted as valid by' parties.⁵ When senior figures such as Lady' Arden, Lord Steyn and Lord Reed offer considered animadversion on some of the above rules it is worth exploring the issues.

In another example there is a Common Law thread which asserts that the primary requirement of the law of commercial contract is the achievement of certainty.” As I discuss in Chapter 3, there is more breadth than this implies and parties also want, in more or less equal measure, fairness and flexibility.

Adopting a neo-Realist approach, John Gava, while accepting a coincidental “commercial hue”, argues that any market utility of contract law is accidental, the law being developed through legal reasoning, doling out rough and ready justice: “the best reading of its history' is that a restricted corps of judges, trained in the common law, developed the law in relative isolation and with a heavy doctrinal influence”.’ The clarity of instrumental judicial expression cannot easily be confuted, and he produces no serious argument that judges operate as if in a silent order, closed off from the real world.

[1] Charles Fried, Contract as Promise (Harvard UP 1981) at 72.
[2] See TM Scanlon discussing “unjustified manipulation” of expectation in Peter Benson, The Theory of Contract Law: New Essays (CUP 2001), chapter 3 Promises and Contracts at 88.91.
[3] This may be seen as explicitly relational - see Ian Austen-Baker, ‘Comprehensive Contract Theory - A Four Norm Model of Contract Relations’ (2009) 25 JCL 216 at 222.
[4] The Oxford Dictionary online defines instrumentalism as a “pragmatic philosophical approach which regards an activity (such as science, law, or education) chiefly as an instrument or tool for some practical purpose”. See also Webster’s New International Dictionary, 1928 “serving as a means”. Morgan, Contract Law Minimalism, refers to the “central purpose" of the law of contract in the preface.
[5] Dori Kimel, ‘The Choice of Paradigm for Theory of Contract: Reflections on the Relational Model’ (2007) 27 OJLS 233 at 248.
[6] Stephen A Smith, Contract Theory (OUP 2004), 132-136 where Smith concentrates on efficiency-based accounts of contract law.
[7] Ibid. 133.
[8] Morgan, Contract Law Minimalism, 6.
[9] Ibid.
[10] Hillas & Co. Ltd v Arcos Ltd (1932) 38 Com Cas 23, [1932] All ER Rep 494 at 503.
[11] The Antaios [ 1984] 3 All ER 229 at 233. For numerous examples of judicial use of common sense see Neil Andrews, ‘Interpretation of Contracts and “Commercial Common Sense”: Do Not Overplay This Useful Criterion’ (2017) 76 CL] 36.
[12] Hillas v Arcos (n. 37 above) at 499.
[13] Southland Frozen Meat and Produce Export Company 1> Nelson Brothers Ltd [ 1898] AC 442 PC.
[14] Smith, Contract Theory, 139.
[15] Ibid.
[16] Catherine Mitchell, Contract Law and Contract Practice: Bridging the Gap between Legal Reasoning and Commercial Expectation (Han Publishing 2013), 3.
[17] Collins, Regulating Contracts, 6.
[18] Morgan, Contract Law Minimalism, preface.
[19] Johan Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LßR433 at 436.
[20] Richard Austen-Baker, Implied Terms in English Contract Law (Edward Elgar 2011).
[21] SM Waddams, Principle and Policy in Contract Law (CUP 2011), 217.
[22] Morgan, Contract Law Minimalism, 3.
[23] See e.g. Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896.
[24] Smith, Contract Theory, 24, suggests that transparency requires that the reasons Judges give must be the “real reasons”.
[25] Aditi Bagchi, ‘The Perspective of Law on Contract’ (2013) 88 Washington LB. 1227 at 1233.
[26] See e.g. JS Hobhouse, ‘International Conventions and Commercial Law’ (1990) 106 LQR 530 at 532 “The first and paramount requirement [of the commercial community] is the achievement of certainty' ... The commercial man needs to be able to obtain prompt and accurate advice about the effect of contracts ...” See Chadwick LJ: “it is reasonable to assume that the parties desire commercial certainty” in EA Grimstead and Son v McGarrigan [ 1999] All ER(D) 1163. See also Vallejo v Wheeler (1774) 1 Cowp 143, 153; 98 ER 1012, 1017. See the qualification in Golden Strait Corporation i> Nippon Yusen Kubishika Kaisha [2007] LIKHL 12, (Transcript) Lord Scott at [38]: “Certainty is a desideratum and a very' important one, particularly in commercial contracts. But it is not a principle and must give way to principle”.