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Disrupting doctrine? Revisiting the doctrinal impact of relational contract theory

Published online by Cambridge University Press:  18 December 2018

Zhong Xing Tan
Zhong Xing Tan*
Affiliation:
Faculty of Law, National University of Singapore, Singapore
*
*Author email: [email protected]
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Abstract

While the concept of the ‘relational contract’ has been invoked in the courts with greater visibility and regularity in recent years, the doctrinal import of relational contract theory remains for the most part unclear to contract and commercial lawyers. This paper offers a broad framework for understanding the different ways through which relational theory might have an impact on contract doctrine going forward, and evaluates the promises and perils of doing so.

Keywords

relational contract theorycontract law and doctrineprivate law theory
Type
Research Article
Information
Legal Studies , Volume 39 , Issue 1 , March 2019 , pp. 98 - 119
Copyright
Copyright © The Society of Legal Scholars 2018 

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Footnotes

†

A previous version of this paper was awarded the 2016–2017 Project on the Foundations of Private Law Prize at Harvard Law School. I am very grateful to Andrew Halpin and John Goldberg for invaluable suggestions on an earlier draft, as well as to Henry Smith, Duncan Kennedy, Jane Bestor, Malcolm Lavoie, Tan Yock Lin, Sandra Booysen, Burton Ong, David Tan, Yeo Hwee Ying, Tan Cheng Han, Dan Puchniak, Antony Anghie, Alan Koh, Samantha Tang, and Justin Tan for thoughts and comments. The usual caveats apply.

References

1 In the UK, the poster child for this development has been Yam Seng v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 All ER 1321. Prior to Yam Seng, there were a number of cases expressly referring to ‘relational contracts’: see eg Mayer v BBC [2004] UKEAT 0010_04_1009 at [20]; Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2002] UKPC 50, [2002] 2 All ER 849 at [40]; Morrow v Safeway Stores plc [2001] UKEAT 0275_00_2109, [2002] IRLR 9 at [19], [24]; Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518 at [20]; Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER 737 at [16]; Total Gas Marketing Ltd v Arco British Ltd [1998] UKHL 22, [1998] CLC 1275 at 1286. Post-Yam Seng, cases which have mentioned the ‘relational contract’ concept include: Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC 3251 (Pat) at [83]; Bristol Groundschool Ltd v Intelligent Data Capture Ltd [2014] EWHC 2145 (Ch), [2014] All ER 117 at [175], [196]; C v T Borough Council [2014] EWHC 2482 (QB), [2015] ELR 1 at 13; Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC), [2015] BLR 675 at [85]; Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661 at [54], [61]; Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2017] 1 All ER 601 at [65]; Apollo Window Blinds Ltd v McNeil [2016] EWHC 2307 (QB) at [22]; National Private Air Transport Services Co (National Air Services) Ltd v Creditrade LLP [2016] EWHC 2144 (Comm) at [134], [136]; BP Gas Marketing Ltd v La Societe Sonatrach [2016] EWHC 2461 (Comm) at [242]; Monde Petroleum SA v WesternZagros Ltd [2016] EWHC 1472 (Comm) at [250], [254], [259]; Ilkerler Otomotiv Sanayai ve Ticaret Anonim v Perkins Engines Co Ltd [2017] EWCA Civ 183 at [28]; Microsoft Mobile Oy (Ltd) v Sony Europe Ltd [2017] EWHC 374 (Ch) at [67]–[69]. A selected number of the more significant decisions are included in the discussion below.

2 ‘The crux of the matter is that the relationship… is such that it has the propensity to generate norms, define or inform parties’ expectations, provide sources of reassurance, facilitate co-operation, create interdependence… over and above, indeed potentially instead of, what can be gleaned from the express terms of the contract…’, see Kimel, D ‘The choice of paradigm for theory of contract: reflections on the relational model’ (2007) 27 Oxford J Legal Stud 233 at 236Google Scholar.

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27 Ibid, pp 105–107.

28 Macaulay, S ‘Non-contractual relations in business: a preliminary study’ (1963) 28 Am Socio Rev 55CrossRefGoogle Scholar, extracted in Braucher, Kidwell and Whitford, above n 4.

29 Ibid, pp 3–12.

30 R Gordon ‘Is the world of contracting relations one of spontaneous order or pervasive state action? Stewart Macaulay scrambles the public–private distinction’ in Braucher, Kidwell and Whitford, above n 4, p 59.

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38 Bernstein, above n 33, at 115.

39 Bernstein, above n 34, at 1754.

40 Ibid, at 1764.

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44 In later years, re-labelled ‘essential’ contract theory to distinguish it from other relational ideas (a re-labelling which has not caught on with most commentators) see Macneil (2001), above n 3, p 326.

45 Ibid, pp 326–327, 311–313, 368.

46 Ibid, p 367.

47 Ibid, p 313.

48 Scott, above n 26, p 106.

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59 Balganesh and Parchomovsky, above n 56, at 1281.

60 Ibid, at 1248–1249.

61 Ibid, at 1288.

62 Donoghue v Stevenson [1932] UKHL 100, [1932] AC 562.

63 Cavendish Square Holdings BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67, [2015] 3 WLR 1373.

64 Cavendish, at [29]–[32].

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67 Ibid, p 214.

68 Collins, H Regulating Contracts (Oxford: Oxford University Press, 1999) p 52Google Scholar.

69 Ibid, p 55.

70 Sheehan, D and Arvind, TT ‘Private law theory and taxonomy: reframing the debate’ (2015) 35 LS 480 at 493Google Scholar.

71 Ibid, at 494.

72 Ibid, at 501.

73 Ibid, at 497–498.

74 Dagan, H ‘Doctrinal categories, legal realism, and the rule of law’ (2015) 163 U Penn LR 1889Google Scholar; see further Dagan, H Reconstructing American Legal Realism & Rethinking Private Law Theory (Oxford: Oxford University Press, 2013) chs 1 and 6CrossRefGoogle Scholar; see also Dagan, H and Heller, M The Choice Theory of Contracts (Cambridge: Cambridge University Press, 2017)CrossRefGoogle Scholar.

75 Dagan (2015), above n 74, at 1907.

76 Ibid, at 1890–91.

77 Some of the work which can be classified under this approach include Austen-Baker, R ‘A relational law of contract?’ (2004) 20 JCL 125Google Scholar; Campbell, D ‘The relational constitution of the discrete contract’ in Campbell, D and Vincent-Jones, P (eds) Contract and Economic Organisation: Socio-legal Initiatives (Aldershot: Darmouth Publishing, 1996)Google Scholar; Campbell, D ‘The relational constitution of remedy: cooperation as the implicit second principle of remedies for breach of contract’ (2005) 11 Texas Wesleyan LR 455Google Scholar; and H Beale ‘Relational values in English contract law’ in Campbell, Mulcahy and Wheeler, above n 8.

78 Austen-Baker, above n 77, at 127–128.

79 Ibid, at 128.

80 Ibid, at 138.

81 [2016] EWCA Civ 553. See further, Davies, PS ‘Varying contracts’ (2016) 75 CLJ 455CrossRefGoogle Scholar.

82 Foakes v Beer [1884] UKHL 1.

83 In MWB [2016] EWCA Civ 553, the court held that part payment of a debt yielded practical benefit in terms of immediate recovery of some of the outstanding sums, a chance of recovery of arrears in future, and the avoidance of the licensor's property remaining empty given the continued occupancy of the licensee, at [47].

84 Austen-Baker, above n 77, at 143.

85 Campbell (1996), above n 77, p 47.

86 (1848) 1 Ex Rep 850.

87 Campbell (2005), above n 77, at 463–467.

88 Ibid, at 466–467.

89 Ibid.

90 Kraus, JS ‘Transparency and determinacy in common law adjudication: a philosophical defense of explanatory economic analysis’ (2007) 93 Virginia LR 287 at 320Google Scholar.

91 Dworkin, R ‘Hard cases’ (1957) 88 Harv L Rev 1057CrossRefGoogle Scholar.

92 Livesey v Jenkins [1984] UKHL 3. See further Burrows, A (ed) English Private Law (Oxford: Oxford University Press, 3rd edn, 2013) ch 8, para 8.190CrossRefGoogle Scholar.

93 Campbell (1996), above n 77, p 50.

94 Yam Seng [2013] EWHC 111 (QB) at [141]. See further, Whittaker, S ‘Good faith, implied terms and commercial contracts’ (2013) 129 LQ Rev 463Google Scholar; Campbell, D ‘Good faith and the ubiquity of the “relational” contract’ (2014) 77 Mod L Rev 460CrossRefGoogle Scholar; and Carter, JW and Courtney, W ‘Good faith in contracts: is there an implied promise to act honestly?’ (2016) 75 CLJ 608CrossRefGoogle Scholar.

95 Yam Seng [2013] EWHC 111 (QB) at [141]–[142].

96 Burrows, above n 92, para 8.193.

97 Insurance Act 2015, s 3(4)(a) and (b) respectively. A full discussion of the disclosure principles under the Act is beyond the scope of this paper. For detailed commentary see Merkin, R and Gürses, O ‘The Insurance Act 2015: rebalancing the interests of insurer and assured’ (2015) 78 Mod L Rev 1004CrossRefGoogle Scholar; Merkin, R and Gürses, O ‘Insurance contracts after the Insurance Act 2015’ (2016) 132 L Q Rev 445Google Scholar.

98 Cartwright, J Misrepresentation, Mistake and Non-Disclosure (London: Sweet & Maxwell, 3rd edn, 2012) p 817Google Scholar.

99 Greenwood v Greenwood (1863) 2 DJ & S 28; see further Gordon v Gordon 36 ER 910.

100 Ikerler Otomotive Sanayai ve Ticaret Anonim v Perkins Engines Co Ltd [2017] EWCA Civ 183 at [26]–[30].

101 See for example Burrows, above n 58, p 9: ‘For an agreement to be legally binding, it must be certain and complete’.

102 Hadfield, GK ‘Problematic relations: franchising and the law of incomplete contracts’ (1990) 42 Stan L Rev 927CrossRefGoogle Scholar.

103 Ibid, at 927–928.

104 [2010] EWCA Civ 485.

105 Durham Tees Valley Airport Ltd v BMIBaby Ltd [2009] EWHC 852 (Ch).

106 (1932) 147 LT 503.

107 Durham Tees [2010] EWCA Civ 485 at [54].

108 Ibid, at [60].

109 Ibid, at [69], [79].

110 Mitchell, above n 10, p 258.

111 Much attention has been devoted to the locus classicus in this regard, Walford v Miles [1992] 2 AC 128 and its (not necessarily filial) progeny, see discussion in E McKendrick ‘The regulation of long term contracts in English law’ in Beatson and Friedmann, above n 66.

112 See for example Fujitsu Services v IBM United Kingdom Ltd [2014] EWHC 752 (TCC) at [141] where broadly worded ‘partnering principles’ in an agreement were described as merely a ‘vision’.

113 Recent examples include Compass Group UK and Ireland Ltd v Mid Essex Hospital Services NHS Trust Ltd [2013] EWCA Civ 200; TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151; Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC).

114 McKendrick, above n 111, p 305.

115 Ibid, pp 317–329.

116 Ibid, p 332.

117 Mitchell, C ‘Behavioural standards in contract and English contract law’ (2016) 33 JCL 234 at 235–236Google Scholar.

118 Ibid, at 243.

119 Yam Seng [2013] EWHC 111 (QB) at [137]. Leggatt J utilised both the traditional ‘business efficacy’ test as well as Lord Hoffmann's formulation in Attorney General for Belize v Belize Telecom Ltd [2009] UKPC 10 at 1993–1995 which sees the traditional criteria not as a series of independent tests, but as different ways of approaching what is ultimately always a question of construction. The current authorities appear to prefer the narrower traditional test, see Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and Another [2015] UKSC 72 at [14]–[32] (Lord Neuberger). Leggatt J declined to imply a good faith duty into all commercial contracts by law (see Yam Seng [2013] EWHC 111 (QB) at [131]), though it should be added that as between implying terms in particular contract and in all commercial contracts, there are multiple options for prescribing default rules of definable categories of contractual relationships. The more ‘disruptive’ option of introducing good faith as an ‘organising principle’ is discussed below.

120 See Carter and Courtney, above n 94.

121 [2016] EWHC 2144 (Comm).

122 Ibid, at [135].

123 [2016] EWCA Civ 396 at [67].

124 The Court of Appeal held that the disputed motors did not fall within the scope of the contract, such that purchase from another party was not a breach of contract. The Court of Appeal also discussed the important issue of the validity of an informal contractual variation where the agreement has a ‘no oral variation’ clause, and held that this was possible, at [95]–[121].

125 Globe Motors [2016] EWCA Civ 396 at [65]–[68].

126 Ibid, at [69].

127 [2014] EWHC 2145 (Ch).

128 Ibid, at [196].

129 [2015] EWHC 226 (QB).

130 Ibid, at [174].

131 Ibid, at [176].

132 Ibid, at [175].

133 Bhasin v Hrynew [2014] 3 SCR 495.

134 Bhasin [2014] 3 SCR 495 at [61], referencing EA Farnsworth ‘Good faith performance and commercial reasonableness under the Uniform Commercial Code?’ (1963) 30 U Chicago L Rev 666; Macaulay, above n 4; Beale and Dugdale, above n 31; Goldwasser, V and Ciro, T ‘Standards of behaviour in commercial contracting’ (2002) 30 ABLR 369Google Scholar.

135 Bhasin [2014] 3 SCR 495 at [63].

136 Ibid, at [43]–[46].

137 Ibid, at [73].

138 Ibid, at [74].

139 A recent commentary goes so far as to suggest that the upshot of a Bhasin-type intervention is not so much substantive as it is an ‘institutional tool for allocating law-making powers from private parties to courts’, allowing courts to ‘act more as legislators than adjudicating bodies’ by ‘establish[ing] a ratio that pre-empts the decision on the entire set of future cases falling within its scope and provid[ing] a prima facie solution to those cases’, see Bertolini, D ‘Decomposing Bhasin v Hrynew: towards an institutional understanding of the general organising principle of good faith in contractual performance’ (2017) 67 U Toronto LJ 348 at 407–408Google Scholar.

140 [2016] EWCA Civ 789.

141 Ibid, at [45].

142 Ibid. Recent Canadian decisions have also struggled to contain Bhasin's reach, declining to use ‘good faith’ to constrain a vendor's right to terminate an agreement for the sale of property upon the purchaser's failure to complete timeously, where time was stipulated to be of the essence (Deangelis v Weldan Properties Inc 2017 ONSC 4155); to cast upon a purchaser an objective ‘best efforts’ obligation (over and beyond honesty) to find suitable financing for a property where suitability was stipulated to be at the purchaser's sole discretion (Gordon Nelson Inc v Cameron 2017 BCSC 1269); or to extend a contractual right of first refusal to cover dispositions not within the scope of the said rights, on their plain reading (Northrock Resources v ExxonMobil Canada Energy 2017 SKCA 60). On the other hand, Bhasin’s impact continues to be felt across the fabric of Canadian contract law, for instance in the consumer context where the duty of honest performance has been held to supplement liability for misrepresentation (Barker v McKerracher 2017 CarswellOnt 12243), and in the employment context where a good faith duty was breached by an employer during a grievance process, in falsely disclosing that there was no work for which the employee could be recalled, when the employer intended new hires (Re IAMAW, Local 99 and Leavitt Machinery General Partnership 2017 CarswellAlta 1285).

143 Soyer, B and Tettenborn, AM ‘Mapping (utmost) good faith in insurance law – future conditional?’ (2016) 132 LQ Rev 618 at 637Google Scholar.

144 Ibid, at 625–626.

145 Ibid, at 626–627.

146 Ibid, at 627–628.

147 Ibid, at 628–629.

148 Johnson v Unisys Ltd [2003] 1 AC 518 (HL).

149 Ibid, at [20].

150 MA Eisenberg ‘Relational contracts’ in Beatson and Friedmann, above n 66.

151 Macneil (2001), above n 3, at pp 378–380.

152 D Campbell ‘Arcos v Ronaasen as a relational contract’ in Campbell, Mulcahy and Wheeler, above n 8, p 163; D Campbell ‘What do we mean by the non-use of contract?’ in Braucher, Kidwell and Whitford, above n 4, p 184.

153 Mitchell, above n 10, p 246.

154 Section 994(1) of the UK Companies Act 2006 provides: ‘A member of a company may apply to the court by petition for an order under this Part on the ground— (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial’. For an overview of the regulatory background and case law, see Hollington, R Hollington on Shareholders' Rights (London: Sweet & Maxwell, 8th edn, 2016)Google Scholar.

155 Means, B ‘A contractual approach to shareholder oppression law’ (2010) 79 Fordham L Rev 1161 at 1196Google Scholar.

156 C Riley ‘Implicit dimensions of contract and the oppression of minority shareholders’ in Campbell, Collins and Wightman, above n 7, p 369.

157 Means, above n 155, at 1196.

158 Riley, above n 156, p 376.

159 Law Commission Shareholder Remedies (Law Com No 142, 1996) para 2.11.

160 Re a Company (No: 00477 of 1986) [1989] 5 BCC 82; Re Saul D Harrison & Sons plc [1995] 1 BCLC 14; O'Neill v Phillips [1999] 1 WLR 1092.

161 O'Neill [1999] 1 WLR 1092 at [7], cited in Re Quantum Survey Management Ltd [2016] EWHC 3084 (Ch) at [75].

162 Re BC&G Care Homes Ltd [2015] EWHC 1518 (Ch).

163 Ibid, at [115].

164 See for instance Re Astec (BSR) plc [1998] BCLC 556; Re Tottenham Hotspur plc [1994] 1 BCLC 655.

165 O'Neill [1999] 1 WLR 1092 at [5].

166 Law Commission, above n 159, para 2.12.

167 O'Neill [1999] 1 WLR 1092 at [5]: ‘Conduct which is perfectly fair between competing businessmen may not be fair between members of a family’ (Lord Hoffmann).

168 Rahman v Malik [2008] 2 BCLC 403.

169 Ibid, at [119].

170 Ibid, at [11].

171 Joffe, V et al. Minority Shareholders: Law, Practice and Procedure (Oxford: Oxford University Press, 4th edn, 2011) para 7.97Google Scholar.

172 See for instance O'Neill [1999] 1 WLR 1092; Shepherd v Williamson [2010] EWHC 2375 (Ch); Harris v Jones [2011] EWHC 1518 (Ch).

173 See for instance Re Cumana [1986] 2 BCC 99; Croly v Good [2010] EWHC 1 (Ch); Sikorski v Sikorski [2012] EWHC 1613 (Ch).

174 See for instance Re London School of Electronics Ltd [1986] Ch 211; Re Little Olympian Each-Ways Ltd (No 3) [1995] 1 BCLC 636; Re Cabot Global Ltd [2016] EWHC 2287 (Ch).

175 O'Neill v Phillips [1999] 1 WLR 1092 at [6]; see also Riley, above n 156, pp 392–395.

176 See for instance Tjio, H ‘An empirical look at the consequences of oppression actions in Singapore’ (2017) 17 J Corp L Stud 405 at 422Google Scholar.

177 See generally Feinman, JM ‘Critical approaches to contract law’ (1983) 30 UCLA L Rev 829Google Scholar.

178 Kennedy, D ‘Form and substance in private law adjudication’ (1976) 89 Harv L Rev 1685CrossRefGoogle Scholar.

179 Unger, R The Critical Legal Studies Movement: Another Time, A Greater Task (London: Verso, 2015) ch 6Google Scholar.

180 Adams, JN and Brownsword, R ‘The ideologies of contract’ (1987) 7 LS 207Google Scholar; Brownsword, R Contract Law: Themes for the Twenty-First Century (Oxford: Oxford University Press, 2nd edn, 2006) ch 7Google Scholar.

181 Claims commonly associated with critical accounts, see (for an overview) Bix, B Jurisprudence: Theory and Context (Sweet & Maxwell, 7th edn, 2015) ch 19Google Scholar.

182 West, R Normative Jurisprudence: An Introduction (Cambridge: Cambridge University Press, 2011) ch 3CrossRefGoogle Scholar.

183 Ibid, p 107.

184 An attempt to distance relational theory from critical accounts is not helped by the fact that one of the classic statements of the critical position, Kennedy's ‘Form and substance in private law adjudication’, above n 178, makes a number of references to Macaulay and Macneil's bodies of work, for instance: ‘much of this article simply abstracts to the level of “private law” the argument of an article by Stewart Macaulay on credit cards’ (at 1686), referencing Macaulay, S ‘Private legislation and the duty to read – business run by IBM machine, the law of contracts and credit cards’ (1966) 19 Vand L Rev 1051Google Scholar.

185 Bridge, M ‘Good faith, the common law, and the CISG’ (2017) 22 Uniform L Rev 98 at 103–104Google Scholar.

186 Campbell, above n 152, p 138.

187 Ibid.

188 Kennedy, above n 178.

189 Dagan, H Reconstructing American Legal Realism & Rethinking Private Law Theory (Oxford: Oxford University Press, 2013) p 50CrossRefGoogle Scholar.

190 Ibid, p 7.

191 Rakoff, above n 66, p 221.

192 Arnold v Britton [2015] UKSC 36 at [15].

193 Metlife Seguros de Tetiro SA v JPMorgan Chase Bank [2016] EWCA Civ 1248.

194 Re Sigma Finance Corp [2009] UKSC 2.

195 Metlife [2016] EWCA Civ 1248 at [87]–[89].

196 Andrews, N ‘Interpretation of contracts and “commercial common sense”: do not overplay this useful criterion’ (2017) 76 CLJ 36 at 38CrossRefGoogle Scholar.

197 [2014] EWHC 2482 (QB).

198 Ibid, at [71]–[72].

199 National Private Air [2016] EWHC 2144 (Comm) at [136].

200 Avalon Ford Sales (1996) v Evans 2017 NLCA 9.

201 Ibid, at [26].

202 Ibid, at [30]–[31].

203 National Private Air [2016] EWHC 2144 (Comm) at [135].