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ABSTRACT
This article examines contract as a focal point of modern society both in terms of the way that it is used to classify relationships and the way in which it is used to order relationships. I look at how contractual structures and relationships across a variety of speciman scenarios (private sector supply contracts and public service delivery contracts) can be explained using the work of Ian Macneil. He gives us an account of how the socialising contexts of contract relationships evolve and change. Smart contracts offer a new way of constructing relationships. Their advocates suggest that they have the potential to revolutionise the practice of exchange. I consider smart contracts from Macneil’s perspective and work through whether his account of relationality will be able to encompass this new practise.
Acknowledgements
Many thanks are owed to the referees of this piece for their invaluable comments and to the editors of this special issue for their support.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes on contributor
Professor Sally Wheeler, OBE MRIA FAcSS is the Dean of ANU College of Law. Prior to taking up this position she was a Professor and Pro-Vice Chancellor for Research and Enterprise at Queen's University Belfast. Professor Wheeler was elected to the Academy of Social Sciences and the Royal Irish Academy in 2011 and 2013, respectively. She was the Head of the School of Law at Queen's University Belfast for several years where she also served as Interim Dean of the Faculty of Arts Humanities and Social Sciences and, in 2017, Pro-Vice Chancellor for Research and Enterprise. Professor Wheeler is the author or co-author of several books on corporate governance, over 70 articles or book chapters, and she has edited or co-edited nine other books. In the 2017 New Years Honours list, Professor Wheeler was awarded an OBE for services to higher education in Northern Ireland.
Notes
1 Chalmers and Davis (Citation2001) pp 74–85.
2 I take doctrinal contract law to be the edifice of legal rules constructed in the nineteenth century around the Will Theory and the ideas of laissez-faire and consent that give contracting parties comfort that their promises to each other will be enforced by the state, see Campbell and Collins (Citation2003) p 25.
3 This is not always the case, see the factual matrix of and the decision in Baird Textile Holdings v Marks and Spencer PLC [2001] EWCA Civ 274 and the contrasting views expressed by Mulcahy and Andrews (Citation2010) 189 and Morgan (Citation2013) p 166.
4 Macneil described his construction of relational contract as being ‘precise, intellectually coherent principles which are … … open textured [enough] for effective use in the law of modern contractual relations’, Macneil (Citation1985a) 545.
5 Eigen tells us that in his survey of US law review articles on empirical studies in contract economic theories were dominant in framing the questions that researchers asked about contract. This should not surprise us; contract concerns the arrangements for exchange and exchange is an economic activity, Eigen (Citation2012).
6 Scott points to the recent popularity of both law and economics scholarship and philosphically inspired accounts of conbtract which he attributes to the increasing number of legal scholars trained first in analytical philosophy. This in his view leads to two things; first the rise of a scholarship which inter alia assumes simplified concepts within contract law and practise that can be tested through complex micro economic modelling techniques and second a generation of scholars who focus on explaining and amplifying the doctrinal model of contract through deontological fundamentally Kantian principles, see Scott (Citation2013) pp 107–124.
7 For an extensive examination of Macneil’s work in that context see Thompson (Citation2015).
8 For an explanation and history of this idea see Szabo (Citation1997) and Filippi and Wright (Citation2018) pp 72–74.
9 Don Tapscott and Alex Tapscott ‘The Impact of the Blockchain Goes Beyond Financial Services’ (2016) Harvard Business Review, May 10 2016. https://hbr.org/2016/05/the-impact-of-the-blockchain-goes-beyond-financial-services
10 For an explanation of the name ‘blockchain’ see http://nakamotoinstitute.org/bitcoin/ (accessed October 27th 2017) and the account offered in McAffe and Brynjolfsson (Citation2017) pp 292f.
11 Fairfield (Citation2014) p 46.
12 Or as Osborne and Gaebler famously put it, separating out steering – the role of government – from rowing – the role of specialists who focus on the thing that they are good at. Osborne and Gaebler (Citation1992) p 35.
13 Hood (Citation1991) pp 4–5.
14 By 1999 81% of UK civil servants had become employees of agencies, Cabinet Office Next Steps Report 1998 Cm4273 London The Stationary Office. In 2008 1148 semi-autonomous agencies with a variety of organizational shapes existed see James et al (Citation2011) pp 57–69.
15 Considine and Painter (Citation1997).
16 For example states with very different institutions configurations and policy imperatives have all been adopters; New Zealand, the Netherlands, Latvia and Sweden, have all been adopters see Pollit et al (Citation2001).
17 This is particularly true in situations where the contractual relationship is about regulating behaviour, see Crawford (Citation2003).
18 Harden (Citation1992).
19 Kettl (Citation1997).
20 Pollit and Bouckaert (Citation2004) pp 24–38.
21 Campbell (Citation2007) p 288.
22 O’Flynn (Citation2007).
23 Stoker (Citation2006).
24 Gallet et al (Citation2015).
25 Gardner et al (Citation2016).
26 Hodge et al (Citation2010).
27 Amirkhanyan et al (Citation2012).
28 English and Baxter (Citation2010).
29 van den Hurk (Citation2016).
30 Walford v Miles [1992] 2 AC 128; Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 117 ALR 393.
31 For example ideas of duress, unconscionability and promissory estoppel.
32 For a discussion of these cases see the literature referred to by McKendrick (Citation2016) p 196 at n1.
33 U.C.C. § 1-201(b)(20) (2012).
34 Restatement (Second) of Contracts § 205 (1981).
35 See for example §242 of the German Civil Code (BGB) and Art 1175 of the Italian Civil Code. For a general discussion of good faith in civilian traditions see Hesselink (Citation2011) p 619.
36 Lando and Beale (Citation2003) p 302–305, art 6:102 Implied Terms.
37 Von Bar and Clive (Citation2010) Art II.-9:101.
38 There are numerous decisions at state level in Australia, see Grey (Citation2015) pp 362 and 366 for detailed referencing to which can be added North East Solutions Pty Ltd v Masters Home Improvement Australia Pty Ltd [2016] VSC 1. Of most significance is the decision of the Federal Court in Pacioccio v Australia and New Zealand Banking Group [2015] FCAFC 50 (see paras 287 and 290). In Canada the most relevant decision is Bhasin v Hrynew [2014] 3 SCR 494 and in England it is the first instance judgment of Leggatt J in Yam Seng Pte Ltd v Int Trade Corp Ltd [2013] EWHC 111.
39 For an exposition on the implication of terms and good faith see Collins (Citation2014).
40 Bhasin v Hrynew [2014] 3 SCR 494 at para 33.
41 Bhasin v Hrynew [2014] 3 SCR 494 at para 60.
42 Bhasin v Hrynew [2014] 3 SCR 494 at para 65.
43 Yam Seng Pte Ltd v Int Trade Corp Ltd [2013] EWHC 111.
44 Yam Seng Pte Ltd v Int Trade Corp Ltd [2013] EWHC at para 134–135.
45 Yam Seng Pte Ltd v Int Trade Corp Ltd [2013] EWHC at para 139.
46 Yam Seng Pte Ltd v Int Trade Corp Ltd [2013] EWHC at para 142.
47 The comments of Leggatt J about good faith and relational contracts are, strictly speaking, obiter.
48 See Bristol Groundschool Limited v Intelligent Data Capture Limited and others [2014] EWHC 2145 (Ch) where Spearman J follows and approves Yam Seng Pte Ltd v Int Trade Corp Ltd [2013] EWHC 111.
49 See MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789 where the English Court of Appeal expressly rejects the ‘general organizing principle’ of good faith in Bhasin. It had been applied at first instance by Leggatt J, see MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2015] EWHC 238 (Comm). For an Australian rejection of Bhasin v Hrynew [2014] 3 SCR 494, see Mineralogy Pty Ltd v Sino Iron Pty Ltd (no6) [2015] FCA 825 at para 1007.
50 Collins (Citation1996) p 67.
51 In relational contract terms tendering practises are considered to be very transactional as opposed to relational, see Macneil (Citation1974) p 756, n192.
52 Campbell (Citation2014).
53 Collins (Citation2014) pp 324–325. Collins explores in more detail what he thinks courts should take into account in these settings in Collins (Citation1999) pp 38–87. See Gava and Greene (Citation2004). This provides a thorough overview of Collins’ position even if its evaluation of it is ultimately not one that I would support.
54 Collins (Citation2014) pp 326–327.
55 Locke et al (Citation2009).
56 Vandenbergh (Citation2007).
57 Rana Plaza was an eight storey commercial building in Dhaka District of central Bangladesh that collapsed as a result of structural failure on April 24th 2013 with the loss of 1134 lives and more than 250 people injured.
58 Schrempf-Stirling and Palazzo (Citation2016).
59 See https://www.theguardian.com/global-development/2017/sep/03/john-lewis-habitat-withdraw-granite-worktops-slavery-concerns (accessed 3rd September 2017).
60 The late Iris Marion Young defined social connectedness in her analysis of the anti-sweatshop campaign that targeted University branded sportswear in the US as a responsibility that derived ‘from belonging together with others in a system of interdependent processes of cooperation and competition’ Young (Citation2006) p 119.
61 It would be remiss not to point out, as Lewis does, that despite its intricacies the formal model of contract law is largely illusory; its universal rules are beset with exceptions and special cases and different dispute resolution regimes apply to apparently similar contexts Lewis (Citation1982).
62 It has been more attractive to scholars in economics, see Williamson (Citation1996) on the merits of Macneil’s work.
63 Barnett contends that ‘Macneil’s relational theory of contract has changed how every contract scholar views the subject, see Barnett (Citation1992). Sadly there is no evidence for the correctness of this proposition in common law contract jurisdictions.
64 See for example Mitchell (Citation2013).
65 This point is made by both Campbell (Citation2000a) and Vincent-Jones (Citation2001) p 67. Campbell and Vincent-Jones have been tireless advocates for Macneil’s work in the UK.
66 For example he moved away from his seemingly key term ‘relational’ at one point (1987a) in favour of ‘intertwined’, only to lose faith in the latter and return to ‘relational’, see Macneil (Citation2000a) 894f.
67 Macneil (Citation1975).
68 Rather ironically Macneil condemns CLS scholarship for its complexity and opaqueness, Macneil (Citation1985b) 514.
69 For example, the iteration of discrete as as if discrete, Macneil (Citation2000a) 896.
70 The most detailed statement of Macneil’s work is his monograph; Macneil (Citation1980). He began to produce US law review articles in the mid-1970s, but his work on contract began much earlier in his career, see Macneil (Citation1968), and Macneil (Citation1966).
71 Macneil (Citation1987a).
72 Macneil (Citation1980) p 5.
73 Mertz (Citation2000).
74 There are exceptions, of course, see Beale (Citation2014) p 645.
75 For an account this see Kimel (Citation2007).
76 See Mitchell (Citation2013). This work is a tour de force. It is an attempt (and the only serious attempt) to advance Macneil’s work from the process of contracting to a legal framework that embraces relationality between contracting parties as a determinative point in adjudication.
77 Gava offers a concise summary of this debate within contract law in the context of a review of Mitchell’s book (Mitchell Citation2013). In my view he dismisses the scale of Mitchell’s ambition particularly in relation to her adoption and explanation of Macneil rather too quickly, see Gava (Citation2014).
78 Beale (Citation2013) p 116.
79 Macneil (Citation1974) p 795. Macneil uses presentiation to signal the practice within the legal contract space of the parties teasing out and agreeing all risk allocations as an expression of their intentions before contractual performance can be said to have begun. As Law and Economics scholarship in the contract area points out, building on Macneil’s relational contract, it is often considered by the parties that their self-interest is better served by letting the agreement evolve whilst performance takes place, see Libecap and Smith (Citation1999).
80 Bernstein (Citation1992) and (2001). Scott also accepts the value of a relational lens but similarly ring fences contract law as separate from the project of contract as a relational institution. Contract law for Scott must be strictly formalist as that offers a solution that is efficient in terms of predictability of litigation outcome and it encourages the parties to create viable informal operating norms, see Scott (Citation2000).
81 Campbell and Harris (Citation1993).
82 Norms is the word that Macneil uses most often but other nomenclature include ‘values’, ‘core elements’ and ‘factual descriptions’.
83 Macneil (Citation1983) and Spediel (Citation2000).
84 The clearest statement of the norms appears in Macneil (Citation2000b).
85 Hughes et al (Citation2011).
86 Petsoulas, Allen, Hughes, Vincent-Jones, and Roberts. (2011).
87 Vincent-Jones (Citation1997) p 143.
88 Macneil (Citation2003) p 208. Macneil’s explanation of these propositions involves takes him using an analogy of a scotch egg inside a haggis and a reference to BBC cookery programme involving Delia Smith. A digression of this nature is unlikely to be found in other contract texts.
89 Macneil (Citation1974) pp 737f.
90 Macneil (Citation2000a) 894f.
91 Macneil (Citation1986).
92 Macneil (Citation1978) p 857.
93 Macneil (Citation1974) p 720.
94 Campbell (Citation1996) p 40; Campbell (Citation2001).
95 Scott (Citation2013) pp 114–115.
96 Macneil (Citation1985b) 490.
97 Wheeler (Citation2013) p 38.
98 In so far as Macneil foresees technology creeping into contract practice as in drafting for example, he sees it producing very high levels of specification in both service and product production scenarios such that ‘even the most specific and measured exchanges [will be] on-going relational patterns’, see Macneil (Citation1980) p 22. However the reality is that technology has resulted in contracts becoming less, not more, relational in the conventional sense of the word.
99 PitchBook, a software company that provides a database on private equity and venture capital decisions, records $4.5bn private investment into Blockchain companies to mid-September 2017 compared with $624m in 2016, see https://files.pitchbook.com/website/files/pdf/PitchBook_3Q_2017_Fintech_Analyst_Note_Blockchain_ICOs.pdf (accessed Nov 1 2017).
100 Fairfield (Citation2015).
101 See Leonard ‘The Internet of Value: What it Means and How it Benefits Everyone’ 21 June 2017, https://ripple.com/insights/the-internet-of-value-what-it-means-and-how-it-benefits-everyone/ (accessed 1 November 2017).
102 This solves the problem that cryptographers call doubling; there is no longer any need for data to be reproduced as a copy; every user can have the original.
103 UK Government Office for Science (Citation2016).
104 The extent to which smart contracts comply with all the legal formalities of doctrinal contract law in terms of formation is yet to be determined. Discussion is still at the stage of examining each application of the technology against its non-computer based alternative, see Lauslahti, Mattila and Seppälä (2017).
105 Szabo (Citation1996).
106 De Filippi and Hassan (Citation2016) and Maupin (Citation2017).
107 In the not too distant future an oracle might be able to act in a dispute resolution capacity, see Abramowicz (Citation2016).
108 Fox-Brewster ‘OpenBazaar is not the next Silk Road – It’s an Anarchist Ebay on Acid’ (2016) Forbes March 16th https://www.forbes.com/sites/thomasbrewster/2016/03/16/openbazaar-silk-road-dark-web-drugs-ebay/#75e93165ab49 (accessed Nov 1, 2017).
109 Tapscott and Tapscott (Citation2016) p 117.
110 Fradkin (Citation2017).
111 Similar gains could occur in a host of other transactional contexts; finance, capital markets, supply chains and nonpayments for example, see Aste (Citation2017).
112 Savelyev (Citation2017), Raskin (Citation2017) at 325f.
113 Bernstein (Citation2001) p 156.
114 Bernstein (Citation1992) p 132.
115 Bernstein (Citation2015).
116 Karagiannis (Citation2014).
117 Levy (Citation2017).
118 Sklaroff (Citation2017) pp 297f provides a detailed discussion of these issues as transaction costs. Cf Lisa Bernstein who provides empirical evidence to suggest that reference to trade customs in formal contracts are not the preference of business parties even in close knit business communities, see Bernstein (Citation2014) p 238.
119 Wheeler (Citation1991).
120 This is a cost that may well decrease in the future as the smart contract environment expands. Certainly there are commentators who see blockchain enabled arrangements as enfranchising rather than disenfranchising, see Sklaroff (Citation2017) pp 299f.
121 Cuccura (Citation2017). Cuccura also makes the point that the presence of a programmer is akin to the reintroduction of an intermediary party, the elimination of which is a key feature of blockchain enabled smart contracts. One might also see the programmer as an interpreter of the parties’ intentions playing the same role that a court might play in a contractual dispute.
122 Swan (Citation2016) suggests that we should be able to see smart contract execution through blockchain as creating a different sense and understanding of time. However ‘blocktime’ does not yet connect with relationality.
123 Macneil (Citation2005).
124 Macneil (Citation1990) p 151.
125 Power in Macneil’s terms is a dynamic concept that the parties share. It does not reside wholly in any one party and shifts over time from one party to the other depending on what is going on in their relationship, see Macneil (Citation1983) p 376.
126 Macneil (Citation1986) p 572 and (1981) p 1047.
127 The importance of trust to exchange relationships is universally acknowledged but opinions differ as to how to define it; see Reiersen (Citation2017) for an explanation of the relevant debates.
128 This runs counter to the view of a number of organizational theorists who see the availability of legal regulation as a precondition for contract, see for example Anderson and Narus (Citation1990) and Zaheer and Venkatraman (Citation1995).
129 Macneil (Citation1987b).
130 Deakin et al (1997). See also the analysis of market individualism provided by Campbell (Citation2013).
131 Deakin et al (Citation1994).
132 Woolthuis et al (Citation2005).
133 Werbach (Citation2016).
134 Gulati and Scott (Citation2012).
135 Al Khalil et al (Citation2017).
136 https://www.edelman.com/insights/intellectual-property/2015-edelman-trust-barometer/trust-across-industries/ (accessed Nov 10, 2017).
137 The trust level for technology was 78%. It was below 60% for financial services and banking.
138 https://www.edelman.com/post/hacking-trust-and-blockchain/ (accessed 3 November 2017).
139 Macneil (Citation1980) at 108f.
140 Macneil (Citation1980) at 110.
141 There is an established literature on the downside of technology, particularly the Internet, for social interaction. However there are accounts of how it changes rather destroys relationships, see, for example, Wallace (Citation2016).