Private Law in the 21st Century 9781509908585, 9781509908615, 9781509908608

This book brings together a wide range of contributors from across the common law world to identify and debate the princ

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English Pages [613] Year 2017

Table of contents :
Preface
Acknowledgements
Contents
Table of Cases
Table of Legislation
Table of Contributors
Part I: Agendas and Predictions
1
Private Law as a Complex System: Agendas for the Twenty-First Century
I. Introduction: The State of Instability
II. Overview
III. General Challenges
IV. Statutes, Codes and the Role of the Common Law
V. Complex Systems and Interactions
VI. New Remedies, Technologies and Intangible Interests
VII. Process Challenges and the Privatisation of Justice
VIII. Conclusions
2
Challenges for Private Law in the Twenty-First Century
I. Introduction
II. Keeping Private Law Alive and Thriving in the Universities
III. The Non-Accessibility of the Common Law: Restatements?
IV. Conclusion
3
Rationalising Tort Law for the Twenty-First Century
I. Introduction
II. Three Proposals to Rationalise the Law of Tort
III. In Place of a Conclusion
4
The Challenges of Private Law: A Research Agenda for an Autonomy-Based Private Law
I. The Task
II. Autonomy-Based Private Law
III. Internal Challenges
IV. Concluding Remarks
5
"The Steaming Lungs of a Pigeon": Predicting the Direction of Australian Contract Law in the Next 25 Years
I. Does Contractual Codification Have a Future in Australia?
II. Contract Doctrine: "Fair Go" or "Far to Go"?
III. Digging Around the Taproot of the Common Law Tree
IV. Contract Law: Old Wine in Old Bottles?
Part II: Legislation, Codification and theRole of the Common Law
6
Codification of Private Law: Scots Law at the Crossroads of Common and Civil law
I. Introduction
II. What Is Codification?
III. For Codification
IV. Against Codification
V. Codification in the Context of the Mixed Legal System of Scotland
VI. What Might a Scottish Civil Code Look Like?
VII. How Practical Would Codification Be?
VIII. What Should Happen to the Doctrine of Precedent?
IX. Comparative Codified Models
X. Conclusions
7
Power Failure? The Distracting Effect of Legislation on Common Law Torts
I. Introduction
II. No Duty to Care: McKenna in the High Court
III. Weeds, Seeds and Dirty Deeds: Statutory Regulation of GMO and Organic Farming, and Implications for Third Parties: Marsh v Baxter
IV. Section 18C of The Racial Discrimination Act-a Clayton"s Defamation Claim?
V. Conclusion
8
Constructive Trusteeship: The Perils of Statutory Formulae
I. Constructive Trusts in the Marshall Islands
II. The Roles of Statute Law
III. The Disgorgement Theory Perpetuated?
Part III: Complex Systems and Interactions
9
Fusing the Equitable Function in Private Law
I. The Equitable Function
II. Carrying Fusion Too Far
III. Implications
IV. Conclusion
10
Dealing with Complexity: Different Approaches to Explaining Accessory Liability
I. Introduction
II. The Framework for Accessory Liability in Accessories in Private Law
III. Alternative Approaches: Davies" Accessory Liability
IV. Conduct and Causation
V. Knowledge
VI. Some Detrimental Consequences of a Single Cause of Action Approach
VII. Conclusion
11
The Challenges Presented by Fundamental Rights to Private Law
I. The Turn Towards Fundamental Rights
II. Three Challenges Posed by the Constitutionalisation of Private Law
III. The Response of Indirect Effect
IV. Indirect Effect in Practice
V. Conclusion
12
The Limits of Technocracy: Private Law"s Future in the Regulatory State
I. Private Law and the Regulatory Jurisdiction
II. Technocracy and Private Law: Differentiating Two Models
III. The Limits of the Regulatory State: The Case of Financial Markets
IV. Reshaping Private Law: Towards a Standard of Enlightened Morality?
13
Common Law and the Constraint of Financial Markets: Credit Rating Agencies as a Test Case
I. Credit Rating Agencies: From Expertise to Monopoly Power
II. Liability in the Anglo-Commonwealth Common Law
III. Re-regulation in the EU and UK-in whose interests?
14
Apologies as "Canaries"-Tortious Liability in Negligence and Insurance in the Twenty-First Century
I. Introduction
II. The Relationship Between Tort Law and Insurance
III. Insurance Contracts, Apologies and Admissions
IV. Applying the Apology-Protecting Legislation-a Balancing Act
V. Bringing the Issues Together
15
When Lump Sums Run Out: Disputes at the Borderlines of Tort Law, Injury Compensation and Social Security
I. Tort Damages and Social Security in Australia
II. Study 1: Profiling Compensation Preclusion Appeals
III. Why Do Lump Sums Run Out?
IV. Study 2: Reasons for Compensation Dissipation
V. Recent Reforms Through the Lens of Evidence on Dissipation
VI. Conclusion
Part IV: New Remedies, Technologiesand Intangible Interests
16
"I"ll Perform If and When You Do": Non-Performance and the Suspension of Contractual Duties
I. Introduction
II. The Civil Law Approach: A Right of Suspension as of Course
III. The Common Law and the Right of Suspension: The Traditional View
IV. The Common Law: The Problems with the Traditional Position
V. Conclusion
17
Vindicatory Damages
I. Vindicatory Damages in the Academic Lexicon
II. The Argument for Vindicatory Damages from Authority
III. Why Do We Have Damages?
IV. The Decline of Vindicatory Damages in Lumba
V. Revisiting the Authorities with which I Began
VI. Conclusion
18
Persuasive Technologies: From Loss of Privacy to Loss of Autonomy
I. Introduction
II. Transactions "in" Information
III. Autonomy and Influence
IV. Regulating Behaviour
V. "Profiling" and Detecting Vulnerabilities
VI. Personalisation
VII. Some Piecemeal Solutions
VIII. Conclusion
19
Snooping: How Should Damages be Assessed for Harmless Breaches of Privacy?
I. Introduction
II. Jones v Tsige
III. Possible Bases on Which to Assess Damages
IV. Conclusion
20
Compensating Injury to Autonomy: A Conceptual and Normative Analysis
I. Introduction
II. Three Types of Injury to Autonomy
III. Constitutive Elements
IV. Normative Justification
V. Conclusion
21
Matter over Mind: Tort Law"s Treatment of Emotional Injury
I. Introduction
II. The Differential Treatment of Emotional and Physical Harm in Legal Doctrine and Theory
III. The Neuroscientific Challenge
IV. Clarifying and Establishing the Right Reasons for the Differential Treatment: Defining Emotion in Tort Law
V. Conclusion
22
The Interaction Between Defamation and Privacy
I. Introduction
II. Why Explore the Interaction Between Defamation and Privacy?
III. Interlocutory Injunctions for Defamation and Privacy
IV. Vindication of Reputation and Protection of Privacy
V. False Privacy
VI. Qualified Privilege and Fair Comment
VII. Conclusion
23
Making Amends by Apologising for Defamatory Publications: Developments in the Twenty-First Century
I. Introduction
II. Remedial Outcomes for Defamation: Alternatives to Damages2
III. Legal Principles that Encourage Apologies in Response to a Defamatory Publication
IV. Defences Involving Apologies for Defamatory Publications
V. The Offer to Make Amends-A Fair Balance?
VI. Conclusions
Part V: Process Challenges and the Privatisation of Justice
24
Tort and Neo-liberalism
I. The Growth of the Claims Market
II. Constraining the Claims Market
III. Conclusion
25
Reforming Australian Litigation Lawyers: Educational Impacts of Civil Procedural Laws and Judicial Activism
I. Introduction
II. Slaying the Costs and Delay Beast
III. A Change in the Australian Approach to Civil Justice
IV. The Problem of Efficacy of Procedural Reform
V. Judges" Role in Civil Justice Reform-One Side of the "Litigation Contract"
VI. Lawyers" Obligations in the Litigation Contract
VII. Can, and Will, Lawyers Really Perform to their Side of the Litigation Contract?
26
Private Law in the Age of the "Vanishing Trial"
I. Introduction
II. Methodology and Structure of the Analysis
III. Evolution and Stability of Private Law Rules
IV. Courts and the Development of Private Law
V. Courts and Legal Certainty of Rules
VI. Why Do We Need Courts? The "Vagueness" of Private Law Language
VII. Concluding Remarks: Has Private Law Got a Public Side?
Index

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Private Law in the 21st Century
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Karen Fairweather
Ross Grantham (editors)

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PRIVATE LAW IN THE 21ST CENTURY This book brings together a wide range of contributors from across the common law world to identify and debate the principal moral and systemic challenges that are likely to face private law in the remaining part of the twenty-first century. The various contributions identify serious problems relating to complexity and overload, threats to research and education, the law’s unintelligibility, the unsatisfactory nature of the law reform process and a general lack of public engagement. They consider the respective future roles of statutes, codes, and judge-made law (in the form of both common law and equitable rules). They consider how best to organise the private law system internally, and how to co-ordinate it externally with other public and economic systems (human rights, regulation, insurance markets and social security frameworks). They address the challenges for private law presented by new forms of technology, and by modern demands for the protection of new and intangible forms of moral interest, such as interests in privacy, ‘vindication’ and ‘personal choice’. They also engage with the critical contemporary debates about access to, and the privatisation of, civil justice. The work will be an important source of inspiration and reference to private lawyers, as well as legislators, policy-makers and students. Volume 19 in the series Hart Studies in Private Law

ii

Private Law in the 21st Century

Edited by

Kit Barker, Karen Fairweather and Ross Grantham

OXFORD AND PORTLAND, OREGON 2017

Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK

www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2017 © The Editors 2017 The Editors have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2016. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-1-50990-858-5 ePDF: 978-1-50990-860-8 ePub: 978-1-50990-859-2 Library of Congress Cataloging-in-Publication Data Names: Barker, Kit, editor. | Fairweather, Karen, editor. | Grantham, Ross, editor. Title: Private law in the 21st century / edited by Kit Barker, Karen Fairweather, and Ross Grantham. Other titles: Private law in the twenty-first century Description: Oxford [UK] ; Portland, Oregon : Hart Publishing, 2017. | Series: Hart studies in private law ; volume 19 | Includes bibliographical references and index. Identifiers: LCCN 2016045790 (print) | LCCN 2016046238 (ebook) | ISBN 9781509908585 (hardback : alk. paper) | ISBN 9781509908592 (Epub) Subjects: LCSH: Civil law. | Common law. | Torts. Classification: LCC K600 .P753 2017 (print) | LCC K600 (ebook) | DDC 346—dc23 LC record available at https://lccn.loc.gov/2016045790 Series: Hart Studies in Private Law, volume 19 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

PREFACE

The aim of this collection of essays is to identify and debate some of the key questions and challenges that private law is likely to face, nationally and internationally, in the remaining years of the twenty-first century. The challenges faced by the law are procedural, substantive, doctrinal, and theoretical. Practitioners of the law are faced with increased complexity, overlap, statutory intervention, and the exponential proliferation of information and sources of law. At the same time, civil litigation systems must grapple with priorities of economy, de-formalisation and access to justice, and with new demands and interests, both public and private. This is an age when more is expected of private law in terms of protecting key aspects of our human flourishing than has ever been the case. Yet, it is also an age in which less money appears to be available in the public system to promote its ends. More is expected to be done with less. Some of the challenges of the age concern the co-ordination of complex sets of rules and increasingly diverse sources of law created by judges, legislators and ‘codifiers’, all of whom stand in historic, but subtly shifting relationships of authority and deference to one another. These challenges present questions about the continuing role of the common law in the modern age and about optimal mechanisms for the most coherent development and reform of private law rules. Other fundamental questions relate to the proper nature and scope of private law entitlements in the changed conditions of the modern world. Personal autonomy in the form of human rights and freedoms is regarded as more important than ever in liberal societies, but often runs up against new social and economic pressures. Increasingly, private law must now also face the challenges of protecting entirely dematerialised, intangible financial, psychiatric and emotional interests, and it is more regularly called upon to develop effective protections for individuals against intrusions upon their personal privacy and individual autonomy. New technologies provide their own tests for the configuration of historic private law rules. The relationship between private law, private insurance systems, public welfare systems and systems of public regulation is also in a renewed state of flux in the wake of general global economic crises and the rise neo-liberal ideologies. This relationship needs to be constantly reappraised and rationalised, but is proving problematic to control in such a way as to make the various discrete systems operate as a coherent whole. In this work, we bring together a wide range of minds with an interest in private law to identify and debate some of the key priorities that it faces in the current, highly challenging environment and to assist in determining who (judges, legislators, policy-makers, law reform bodies, the legal academy?) is best positioned to engage with these priorities, and how they may best set about doing so.

vi

ACKNOWLEDGEMENTS

This book is the result of an international conference hosted by the Australian Centre of Private Law in the TC Beirne School of Law, The University of Queensland on the 14th and 15th of December 2015. The purpose of the conference was to engage views from across the globe regarding the principal challenges that private law is likely to face in the twenty-first century, and to set about thinking how these challenges might best be met, by whom and over what time-frame. The quality of discussion over the two days was extremely high and benefited from the input not just of members of the legal academy, but of ex-law commissioners, distinguished judges, local government and experienced legal practitioners from all over the world. We would like to express our gratitude to all those who participated in the very lively and productive debate that took place in Brisbane on those two days. As is ever the case in successful conference proceedings, much more goes on beneath the surface than is readily apparent. For their tireless and good-humoured assistance in staging the event and helping out on the day, we would like to say a special thank you to Jane Gay, Therese Yat, Nadine Davidson-Wall, Stephen Meadowcroft, Jordan English, Zackary George and Sophie Ryan. We would also like to thank Bill Asquith of Hart Publishing for his enthusiasm for the project and to acknowledge the financial support accorded to the Centre of Private Law by the University of Queensland, which made the event—and hence this book—possible. Kit Barker, Karen Fairweather and Ross Grantham April 2016

viii

CONTENTS

Preface��v Acknowledgements�� vii Table of Cases�� xiii Table of Legislation�� xxxiii Table of Contributors�� xliii

Part I: Agendas and Predictions 1. Private Law as a Complex System: Agendas for the Twenty-First Century��3 Kit Barker 2. Challenges for Private Law in the Twenty-First Century��29 Andrew Burrows 3. Rationalising Tort Law for the Twenty-First Century��47 Ken Oliphant 4. The Challenges of Private Law: A Research Agenda for an Autonomy-Based Private Law��67 Hanoch Dagan 5. ‘The Steaming Lungs of a Pigeon’: Predicting the Direction of Australian Contract Law in the Next 25 Years��89 Warren Swain Part II: Legislation, Codification and the Role of the Common Law 6. Codification of Private Law: Scots Law at the Crossroads of Common and Civil law��107 Martin A Hogg 7. Power Failure? The Distracting Effect of Legislation on Common Law Torts��131 Wendy Bonython 8. Constructive Trusteeship: The Perils of Statutory Formulae��155 Darryn Jensen Part III: Complex Systems and Interactions 9. Fusing the Equitable Function in Private Law��173 Henry E Smith

x

Contents

10. Dealing with Complexity: Different Approaches to Explaining Accessory Liability��197 Joachim Dietrich 11. The Challenges Presented by Fundamental Rights to Private Law��213 Hugh Collins 12. The Limits of Technocracy: Private Law’s Future in the Regulatory State��237 TT Arvind and Joanna Gray 13. Common Law and the Constraint of Financial Markets: Credit Rating Agencies as a Test Case��257 Joshua Getzler and Alexandra Whelan 14. Apologies as ‘Canaries’—Tortious Liability in Negligence and Insurance in the Twenty-First Century��281 Prue Vines 15. When Lump Sums Run Out: Disputes at the Borderlines of Tort Law, Injury Compensation and Social Security��301 Genevieve Grant, Kylie Burns, Rosamund Harrington, Prue Vines, Elizabeth Kendall and Annick Maujean Part IV: New Remedies, Technologies and Intangible Interests 16. ‘I’ll Perform If and When You Do’: Non-Performance and the Suspension of Contractual Duties��325 Andrew Tettenborn 17. Vindicatory Damages��343 James Edelman 18. Persuasive Technologies: From Loss of Privacy to Loss of Autonomy��363 Eliza Mik 19. Snooping: How Should Damages be Assessed for Harmless Breaches of Privacy?��389 Erika Chamberlain 20. Compensating Injury to Autonomy: A Conceptual and Normative Analysis��411 Tsachi Keren-Paz 21. Matter over Mind: Tort Law’s Treatment of Emotional Injury��439 Anne Schuurman and Zoë Sinel 22. The Interaction Between Defamation and Privacy��463 David Rolph 23. Making Amends by Apologising for Defamatory Publications: Developments in the Twenty-First Century��479 Robyn Carroll and Jeffrey Berryman

Contents

xi

Part V: Process Challenges and the Privatisation of Justice 24. Tort and Neo-liberalism��503 Annette Morris 25. Reforming Australian Litigation Lawyers: Educational Impacts of Civil Procedural Laws and Judicial Activism��527 Francesca Bartlett 26. Private Law in the Age of the ‘Vanishing Trial’��547 Carlo Vittorio Giabardo

Index��561

xii

TABLE OF CASES

Australia A v Ipec Australia Ltd [1973] VR 39�� 475 ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65��248, 249, 254–255, 270–272, 277, 279 ACN 005 057 349 Pty Ltd v Commissioner of State Revenue [2015] VSCA 332�� 16 Age Co Ltd v Elliott [2006] VSCA 168; (2006) 14 VR 375�� 475 Aikman v Arnold (1934) 51 WN (NSW) 205�� 292 Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236 (NSWSC)�� 94 AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd [2010] NSWSC 1395�� 475 Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30�� 91 Androvitsaneas v Members First Broker Network [2013] VSCA 212�� 96 Animal Liberation (Vic) Inc v Gasser [1991] 1 VR 51�� 471 Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175�� 529 ASIC v Citigroup Global Markets Australia Pty Ltd [2007] FCA 963�� 271 Australia and New Zealand Banking Group Ltd v Westpac Banking Corp [1988] HCA 17 [11]; (1988) 164 CLR 662�� 353 Australia Media Holdings Pty Ltd v Telstra (1998) 43 NSWLR 104 (NSWCA)�� 95 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199�� 466, 474 Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57�� 470–471 Australian Capital Television Pty Ltd v Commonwealth (1992) 177 CLR 106�� 469 Australian Consolidated Press Ltd v Ettingshausen [1993] NSWCA 10; (1991) 23 NSWLR 443�� 463, 468 Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14�� 19 Australian Football League v Age Co Ltd (2006) 15 VR 419�� 477 Australian National Airlines Commission v Robinson [1977] VR 87�� 335 Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286�� 96, 97 Ballina Shire Council v Ringland (1994) 33 NSWLR 680�� 474 Bamco Villa Pty Ltd v Montedeen Pty Ltd [2001] VSC 192�� 96 Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566�� 160 Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200�� 248, 271 Baxter v British Airways plc (1988) 82 ALR 298�� 293 Beechwood Homes (NSW) Pty Ltd v Camenzuli [2010] NSWSC 521�� 471 Bellino v Australian Broadcasting Corporation (1996) 185 CLR 183�� 477 Bleyer v Google Inc [2014] NSWSC 897�� 529 Blomley v Ryan (1956) 99 CLR 362�� 95 Bowes v Chaleyer (1923) 32 CLR 159�� 329 Boyd v Mirror Newspapers [1980] 2 NSWLR 449�� 475 Brand v Monks [2009] NSWSC 1454�� 475

xiv

Table of Cases

Bridgewater v Leahey (1998) 194 CLR 457�� 95 Brighten Pty Ltd v Nine Network Australia Pty Ltd [2009] NSWSC 319�� 471 Broadbent v Small (1876) 2 VLR (L) 121�� 477 Broadlands Properties Ltd v Guardian Assurance Co Ltd (1984) 3 ANZ Ins Cas 60-552�� 292, 294 Brookfield Multiplex v Owners Corporation Ltd [2014] HCA 36�� 18 Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342�� 8, 360 Burnie Port Authority v General Jones [1994] HCA 13; (1994) 179 CLR 520�� 51, 147 Bushara v Nobananbas Pty Ltd & Anor [2012] NSWSC 63�� 492 Butt v M’Donald (1876) 7 QLJ 68 (QSC)�� 96 Caltex Oil v The Dredge ‘Willemstadt’ (1976) 136 CLR 529�� 283 Campbells Cash and Carry Pty ltd v Fostif Pty Ltd (2006) 229 CLR 386�� 539 Carson v John Fairfax & Sons Ltd (1993) 178 CLR 44�� 480, 485 Casey v Repatriation Commission (1995) 39 ALD 34�� 530 Cerutti v Crestside Pty Ltd [2014] QCA 33�� 474, 486 Chan v Sellwood [2009] NSWSC 1335�� 466 Choi v Mee Wah To (No 3) [2014] QCAT 030�� 530 Church of Scientology of California Inc v Reader’s Digest Services Pty Ltd [1980] 1 NSWLR 344�� 472 Clark v Ainsworth (1996) 40 NSWLR 463�� 486 Clark v Macourt [2013] HCA 56; (2013) 88 ALJR 190�� 354 Clayton v R [2006] HCA 58; (2006) 231 ALR 500�� 206, 207 Clyne v NSW Bar Association (1960) 104 CLR 186�� 540 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 (NSWCA)�� 95 Commercial Bank of Australia v Amadio (1983) 151 CLR 447�� 95 Commonwealth Bank of Australia v Barker (2014) 253 CLR,�� 337 Commonwealth v Verwayen (1990) 170 CLR 394�� 99 Consul Development Pty Ltd v DPC Estates (1975) 132 CLR 373�� 168 Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434�� 477 Council of the Shire of Sutherland v Heyman [1985] HCA 41; (1985) 157 CLR 424�� 137 Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1�� 136–137 David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353�� 353 Department of Family and Community Services and Guettler [1999] AATA 257�� 314, 315 Dietrich v R [1992] HCA 57; (1992) 177 CLR 292�� 552 Doe v Australian Broadcasting Corporation [2007] VCC 281�� 466 Domino’s Pizza Enterprises Ltd v Stuart-Carberry unreported, SC (NSW), 2016/00061753, 4 March 2016�� 471 Doulman v ACT Electronic; Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282�� 540 Dovuro Pty Ltd v Wilkins (2003) 201 ALR 139�� 293 Dow Jones & Co Inc v Gutnick (2002) 210 CLR 57�� 464 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43�� 293 Eatock v Bolt [2011] FCA 1103�� 148–152 Eaton v ISS Catering Pty Ltd [2013] VSCA 361�� 529 Edelsten v Australian Broadcasting Corporation (1984) Aust Torts Reports ¶80-672�� 471 Electrolux Home Products Pty Ltd v Delap Impex KFT [2015] FCA 62�� 8 Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709�� 95 Equuscorp Pty Ltd v Haxton [2012] HCA 7�� 166

Table of Cases

xv

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) [1997] HCA 8; (1997) 188 CLR 241��135, 238, 272, 285 Evans v European Bank Ltd (2004) 61 NSWLR 75�� 167 Expense Reduction Analysists Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46�� 545 Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310�� 96 Fernando by his Tutor Ley v Commonwealth of Australia [2015] HCATrans 286�� 344 Fightvisi on Pty Ltd v Onisforou (1999) 47 NSWLR 473�� 203 Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134�� 538 Freeburn v The Cake Decorators Association of NSW Inc (No 2) [2014] NSWDC 173�� 529 Fritz v Queensland Corrective Services Commission unreported, Qld SC, 24 April 1995�� 435 G R Mailman & Assocs Pty Ltd v Wormald (Aust) Pty Ltd [1991] 24 NSWLR 80�� 173 G v Armelin [2008] ACTSC 68; (2008) 219 FLR 359�� 293 Gala v Preston [1991] HCA 18; (1991) 172 CLR 243�� 138 Gammage v The Queen [1969] HCA 68; (1969) 122 CLR 444�� 131 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1�� 98 Gee v Burger [2009] NSWSC 149�� 466 Ghosh v TCN Channel Nine Pty Ltd & Ors (No 4) [2014] NSWDC 151�� 529 Gianarelli v Wraith (1988) 165 CLR 543�� 530 Gifford v Strang Patrick Stevedoring Pty Ltd [2003] HCA 33; (2003) 214 CLR 269�� 137 Gillard v R [2003] HCA 64; (2003) 219 CLR 1�� 207 Giller v Procopets (2008) 24 VR 1�� 466 Giumelli v Giumelli (1999) 196 CLR 101�� 161 Goldman v Hargrave [1966] UKPCHCA 2; (1966) 115 CLR 458�� 142 Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540�� 138 Gray v Motor Accident Commission [1998] HCA 70; (1998) 196 CLR 1�� 352 Gray v Richards [2014] HCA 40; (2014) 253 CLR 660�� 312 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669�� 293 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296�� 210 Grosse v Purvis (2003) Aust Torts Reports ¶81-706�� 389, 466 GS v News Ltd (1998) Aust Torts Reports ¶81-466�� 463 GSA Group Pty Ltd v Siebe PLC (1993) 30 NSWLR 573�� 96 Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60�� 351 Hamilton and Secretary Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 282�� 316 Hardie Finance Corporation Pty Ltd v Ahern (No 3) [2010] WASC 403�� 293 Hawkesbury District Health Service Ltd v Chaker [2010] NSWCA 320�� 536 Healey v Commonwealth Bank of Australia [1998] NSWCA 103�� 95 Herald and Weekly Times Ltd v McGregor (1928) 41 CLR 254�� 486 Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159�� 135 Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd (Ruling No 8) [2014] VSC 567�� 527 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 (ACTDR)�� 96 Hunt v Radio 2SM Pty Ltd (No 2) [2010] NSWDC 43�� 488 Hunter and New England Local Health District v McKenna; Hunter and New England Local Health District v Simon [2014] HCA 44�� 140 Hunter Business Finance Pty Ltd v Australian Commercial & Equipment Finance Pty Ltd [2003] NSWSC 122�� 96 Imbree v McNeilly (2008) 236 CLR, 283�� 287 In the matter of Debera Anne Ebbett [2002] SCT/76�� 540

xvi

Table of Cases

In the matter of Mustang Marine Aust Service PL [2014] NSWSC 1074�� 538 Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549�� 137 Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75�� 538 JF Keir Pty Ltd v Priority Management Systems Pty Ltd (Administrators Appointed) [2007] NSWSC 789�� 97 John Alexander’s Clubs v White City Tennis Club Ltd (2010) 241 CLR 1�� 161 John Fairfax Publications Pty Ltd v O’Shane (2005) Aust Torts Reports ¶81-879 Johnson v Johnson [1991] NSWCA 159�� 477 Jones v Dumbrell [1981] VR 199 (SC)�� 277 Kakavas v Crown Melbourne Ltd [2013] HCA 25�� 95 Kalaba v Commonwealth of Australia [2004] FCA; [2004] FCAFC 326�� 466 Kaplan v Go Daddy Group [2005] NSWSC 636�� 471 Keech and Secretary Department of Families Housing Community Services and Indigenous Affairs [2012] AATA 147�� 314 Kendirjian v Lapore [2014] NSWDC 66�� 540 Kenny v Australian Broadcasting Corporation [2014] NSWSC 190�� 474 Khalid v Channel Seven Sydney Pty Ltd [2014] NSWSC 9�� 471 Kidu v Fifer [2016] NSWSC 488�� 471 Knight v FP Special Assets Ltd (1992) 174 CLR 178�� 537 Kumar v Minister for Immigration & Multicultural Affairs (No 2) (2004) 133 FCR 582�� 528 Lange v Australian Broadcasting Corporation (1997) 189 CLR 520�� 464 Lemoto v Abel Technical Pty Ltd [2005] NSWCA 153�� 540 Louth v Diprose (1992) 175 CLR 621�� 95 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635�� 18 Lynch v Lynch (1991) 25 NSWLR 411�� 284, 287 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268�� 95, 97 Makawe Pty ltd v Randwick City Council [2009] NSWCA 412�� 20 Marsh v Baxter [2014] WASC 187; [2015] WASCA 169�� 142, 147–148 Maynes v Casey [2011] NSWCA 156�� 466 McAuliffe v R [1995] HCA 37; (1995) 183 CLR 108�� 207 McCormick and Secretary Department of Families Housing Community Services and Indigenous Affairs [2013] AATA 36�� 317 MCI City Investments v Treasury Wine Estates Ltd [2015] HCATrans,�� 538 McKenna v Hunter and New England Local Health District [2013] NSWCA 476; (2013) Aust Torts Reports ¶82-158�� 140 Menzies v Paccar Financial Pty Ltd [2011] FCA 1161�� 539 Merick v Dickinson [1924] VLR 131�� 292 Miller v Miller [2011] HCA 9; (2011) 242 CLR 446�� 135–136 Munsie v Dowling [2014] NSWSC 458�� 471 Nadarajapillai v Naderasa (No 2) [2015] NSWCA 209�� 542 National Insurance Co of New Zealand v Espagne (1961) 105 CLR 569�� 287 Nationwide News Pty Ltd v Wills (1992) 177 CLR 1�� 469 Neindorf v Junkovic [2005] HCA 75; (2005) 222 ALR 631�� 285 Nominal Defendant v Gabriel [2007] NSWCA 52; (2007) 71 NSWLR 150�� 293 Norman South Pty Ltd v da Silva (No 2) [2012] VSC 622�� 539 Northern Sandblasting v Harris (1997) 188 CLR 313�� 285 O’Neill and Secretary Department of Education Employment and Workplace Relations [2009] AATA 619�� 317 Optus Networks Pty Ltd v Telstra Corp Ltd [2001] FCA 1798�� 96

Table of Cases

xvii

Oshlack v Richmond River Council (1998) 193 CLR 72�� 537 Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17�� 96 Palace Films Pty Ltd v Fairfax Media Publications Pty Ltd [2010] NSWSC 415�� 475 Pedavoli v Fairfax Media Publications Pty Ltd [2014] NSWSC 1674; (2014) ALR 166��485, 495, 497, 498 Perpetual Trustees Company Ltd v Cowley & Anor [2010] QSC 65�� 540 Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180; (1999) 164 ALR 606��142, 272, 285, 397 Pingel v Toowoomba Newspapers Pty Ltd [2010] QCA 175��482, 488, 491, 492, 495 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10�� 96 Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635��346–348, 349, 357–358, 464 Pryke v Advertiser Newspapers Ltd (1984) 37 SASR 175�� 477 Pyrenees Shire Council v Day [1998] HCA 3; (1999) 198 CLR 180�� 285 Radio 2UE Sydney Pty Ltd v Chesterton [2009] HCA 16; (2009) 238 CLR 460�� 475 Re Bendeich (1994) 126 ALR 643�� 538–539 Re Le Meilleur Pty Ltd [2011] NSWSC 1115; (2011) 256 FLR 240�� 293 Re Pan Pharmaceuticals Ltd (in liq): Australian Natural Care Products Pty Ltd v McGrath [2006] FCA 1403; (2006) 237 ALR 389�� 285 Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 (NSWCA)�� 96 Rhone-Polenc Agrichimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567; aff ’d (1986) 12 FCR 477�� 293 Rofe v Smith’s Newspapers Ltd (1924) 25 SR (NSW) 4�� 475 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45�� 96 Ryan D’Orta–Ekenaike v Victoria Legal Aid [2005] HCA 12�� 18 Saad v Chubb Security Australia Pty Ltd [2012] NSWSC 1183�� 466 Sali v SPC Ltd (1993) 67 ALJR 841�� 532 Sattin v Nationwide News Pty Ltd (1996) 39 NSWLR 32�� 467 Scott v Scott [1963] HCA 65; (1963) 109 CLR 649�� 157 Secretary Department of Employment and Workplace Relations and Lloyd [2007] AATA 26�� 313, 316, 318–319 Secretary Department of Social Security v Stephen Hickman [1996] AATA 262�� 317 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596�� 96 Setka v Abbott [2013] VSCA 345�� 540, 541 Seven Network (Operations) Pty Ltd v Australian Broadcasting Corporation [2007] NSWSC 1289�� 466 Seven Network Ltd v News Ltd [2007] FCA 106�� 529 Simon & Anor v Hunter & New England Local Health District; McKenna v Hunter & New England Local [2012] NSWDC 19�� 139 Singleton v French (1986) 5 NSWLR 425�� 475 Skelton v Collins [1966] HCA 14; (1966) 115 CLR 94�� 351, 359 Sleeman v Tuloch Pty Ltd (No 3) [2013] NSWDC 92�� 498 Smith Kline & French Laboratories (Aus) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73�� 477 Smith v Lucht [2014] QDC 302�� 529 South Wales v Ibbett [2006] HCA 57; (2006) 229 CLR 638�� 347–348 Sparke v Osborne [1908] HCA 46; (1908) 7 CLR 51�� 142 Steindl Nominees Pty Ltd v Laghaifar [2003] 2 Qd R 683�� 539 Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222�� 95

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Table of Cases

Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562��18, 135, 272, 467 Sullivan v Sclanders (2000) 77 SASR 419�� 477 Summertime Holdings Pty Ltd v Environmental Defender’s Office Ltd (1998) 45 NSWLR 291�� 482 Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977�� 540 Surefire Holdings P/L v Oxley Sportsdrome P/L [2001] QSC 085�� 540 Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161�� 285 Swick v Leroi [2015] WASCA 35�� 293 Swimsure (Laboratories) Pty Ltd v McDonald [1979] 2 NSWLR 796�� 471, 472 Tame v New South Wales (2002) 211 CLR 317; 191 ALR 449�� 445, 467 Tate v Duncan-Strelec [2013] NSWSC 1446�� 471 TCN Channel Nine Pty Ltd v Anning [2002] NSWCA 82�� 463 Telstra Corporation Limited v Treloar [2000] FCA 1170�� 136 Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402�� 303 United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 (NSWCA)�� 95 Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118�� 472, 485 Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422�� 283 Victoria Park Racing and Recreations Ground Co Ltd v Taylor (1937) 58 CLR 479�� 463 Viro v R (1978) 141 CLR 88�� 90 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15�� 98 Voulis v Kozary (1975) 180 CLR 177�� 292 Welch and Secretary Department of Family and Community Services [2003] AATA 905�� 316 Whitford v Clarke [1939] SASR 434�� 477 Williams v Spowers (1882) 8 VLR (L) 82�� 477 Wingfoot Australia Partner Pty Ltd & Anor v Jovevski [2014] VSCA 21�� 541 Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) [2015] FCA 1327�� 351 Woodward v Woodward (No 2) [2015] NSWSC 362�� 542 Y and Z v W (2007) 70 NSWLR 377; [2007] NSWCA 329�� 471 Yarra Australia Pty Ltd v Radhika Pankaj Oswald & Ors [2013] VSCA 337�� 541 Canada Action Auto Leasing & Gallery Inc v Gray [2013] OJ No 898�� 466 AIC v Fischer 2013 SCC 69; [2013] 3 SCR 949�� 393 Albayate v Bank of Montreal 2015 BCSC 695�� 392 Bain v Black & Decker Canada (1989) Inc 2009 CarswellOnt 3987 (SCJ) (WL Can)�� 455 Bhasin v Hrynew [2014] 3 SCR 495�� 97 Botiuk v Toronto Free Press Publication [1995] 3 SCR 3�� 491 Boucher v Wal-Mart Canada Corp 2014 ONCA 419�� 443 Canada Metal Co Ltd v Canadian Broadcasting Corporation (1975) 55 DLR (3d) 42�� 470 Carter v Gair (1999) 64 BCLR (3d) 272 (CA)�� 486, 487 Church of Scientology of British Columbia v Radio NW Ltd [1974] 4 WWR 173�� 470 Ciszowski v Canac Kitchens 2015 ONSC 73�� 443 Condon v Canada 2014 FC 250�� 390, 392–393, 409 Cormack v Chambers [2015] ONSC 5599�� 297 D’Amato v Badger; Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210�� 442 Devji v District of British Columbia 1999 BCCA 599�� 446

Table of Cases

xix

Dobson v Dobson [1999] 2 SCR 753�� 283, 284 Doe 464533 v D 2016 ONSC 541�� 390, 466 Duwynv Kaprielian (1978) 22 OR (2d) 736 (CA)�� 455 Euteneier v Lee (2005) 77 OR (3d)�� 408 Evans v The Bank of Nova Scotia 2014 ONSC 2135�� 405 Fitzpatrick v Orwin 2012 ONSC 3492�� 442 Gilles E Néron Communication Marketing Inc v Chambre des notaires du Québec [2004] 3 SCR 95�� 484 Graham v MacMillan 2003 BCCA 90�� 444 Grant v Torstar 2009 SCC 61; [2009] 3 SCR 640�� 400, 476 Hasenclever v Hoskins (1988) 47 CCLT 225 (Ont Div Ct)�� 454 Healey v Lakeridge Health Corporation (2011) 103 OR (3d) 401�� 444 Heighington v Ontario (1987) 60 OR (2d) 641 (HC)�� 454 Hercules Managements Ltd. v Ernst & Young [1997] 2 SCR 165�� 238 Hill v Church of Scientology of Toronto [1995] 2 SCR 1130�� 487 Hodgson v Canadian Newspapers Co Ltd (2000) 49 OR (3d) 161 (CA)�� 491 Hollick v Toronto (City) 2001 SCC 68; [2001] 3 SCR 158�� 393 Hopkins v Kay 2015 ONCA 112�� 390, 394 Hoste v Victoria Times Publishing Co (1889) 1 BCR 365 (BCSC) 366�� 487 Hunger Project v Council on Mind Abuse (COMA) Inc (1995) 22 OR (3d) 29 (Gen Div)�� 482 John v Lee (2009) BCCA 313�� 482 Jones v Tsige 2012 ONCA 32; 108 OR (3d) 241�� 389, 390–392, 466 Lachambre v Nair (1989) 74 Sask R 86 (Sask Ct of QB)�� 414 MacKay v Buelow (1995) 24 CCLT (2d)�� 391 Malcolm v Fleming [2000] BCJ No 2400�� 391 Manno v Henry 2008 BCSC 738�� 486, 487 Mason v Westside Cemeteries Ltd [1996] 135 DLR (4th) 361 (ON SC)�� 444 McDermott v Ramadanovic Estate (1988) 44 CCLT 249 (BCSC)�� 444 McIntosh v Legal Aid Ontario 2014 ONSC 6136�� 392 Moore v Canadian Newspapers Co (1989) 69 OR (2d) 262 (HC)�� 483 Murray Alter Talent Associates Ltd v Toronto Star Newspapers Ltd (1995) 124 DLR (4th) 105 (Ont Div Ct)�� 490 Mustapha v Culligan 2008 SCC 27; (2006) 84 OR (3d) 457 (CA); [2005] OJ No. 1469, 32 CCLT (3d) 123 (SCJ); [2008] 2 SCR��114, 406, 444, 455–456 Ottawa-Carlton District School Board v Scharf [2007] OJ No 3030, aff ’d 2008 ONCA 154�� 483 Piresferreira v Ayotte 2010 ONCA 384�� 443 Prinzo v Baycrest Centre for Geriatric Care (2002) 60 OR (3d)�� 406 R v Dyment [1988] 2 SCR 417�� 401, 408 R v Tessling 2004 SCC 67; [2004] 3 SCR 432�� 401, 408 Rahemtulla v Vanfed Credit Union [1984] 3 WWR 296�� 442 Ramsey v Pacific Press, a Division of Southam Inc 2000 BCSC 1551�� 487, 490 Rapp v McClelland and Stewart Ltd (1992) 34 O (2d) 452�� 470 Rhodes v Canadian National Railway Co [1990] DLR (4th) 248 (BCCA)�� 444 RWDSU v Dolphin Delivery Ltd [1986] 2 SCR 573�� 400 Sopinka (Litigation Guardian of) v Sopinka (2001) 55 OR (3d) 529 (SCJ)�� 454 Tait v Westminster Radio Ltd (1984) 58 BCLR 194 (CA)�� 486 Teskey v Canadian Newspapers Co (1989) 68 OR (2d) 737 (CA)�� 490

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Table of Cases

Tran v Financial Debt Recovery Ltd (2000) 2 CCLT (3d) 270 (Ont SCJ), rev’d on other grounds (2001) 40 CCLT (3d) 106 (Ont Div Ct)�� 454 Tremblay v Campbell (2010) Nfld & PEIR 1 (Nfld CA)�� 486, 487 Trout Point Lodge v Handshoe 2012 NSSC 245�� 389, 466 Turner v Thorne (1960) 21 DLR (2d) 29�� 58 Vancouver (City) v Ward 2010 SCC 27; [2010] 2 SCR 28�� 399 Vanek v Great Atlantic & Pacific Co of Canada (1999) 48 OR (3d) 228 (ONCA)�� 445 Warman v Veck 2015 ONSC 4860�� 487 Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46; [2001] 2 SCR 534�� 393 Winnipeg Condominium Corp No 36 v Bird Construction Co [1995] 1 SCR 85�� 442 Wipfli v Britten (1982) 22 CCLT 104 (BCSC)�� 454 Young v Bella (2006) 261 DLR (4th) 516�� 467 European Alemo-Herron and others v Parkwood Leisure Ltd [2014] 1 CMLR 21; [2013] ICR 1116 (CJEU)�� 217 Brasserie du Pêcheur v Germany [1991] ECR I–4983�� 55 Connors v United Kingdom (2004) 40 EHRR 189�� 224 Courage v Crehan [2001] ECR I-6297�� 49 Crisp v Apple Retail (UK) Ltd ET/1500258/11 unreported, 22 November 2011�� 230 Francovich v Italy [1991] ECR I–5357�� 49 J A Pye (Oxford) Ltd v UK (2006) 43 EHRR 3; reversed by Grand Chamber, (2007) 46 EHRR 1083�� 234 Kušionová v SMART Capital a s unreported, CJEU, 2014�� 234 Markt Intern Verlag GmbH and Klaus Beermann v Germany (1989) 12 EHRR 161�� 429 McCann v United Kingdom (2008) 47 EHRR 40�� 224 Osman v United Kingdom (1998) 29 EHRR 245�� 215 Pla and Puncernau v Andorra (2006) 42 EHRR 25�� 231–232 Productores de Musica de Espana (Promusicae) v Telefonica de Espana SAU [2008] CMLR 465 (ECJ)�� 217 Redfearn v UK (2013) 57 EHRR 2; [2013] IRLR 51�� 229, 234 UPC Telekabel Wien GmbH v Constantin Film Verleih GmbH and Wega Filmproduktionsgesellschaft mbH (27/3/14 not yet reported)�� 217 Von Hannover v Germany (No 2) (2012) 55 EHRR 15�� 213 Z v United Kingdom (2002) 34 EHRR 97�� 55 France Cass civ (3) 13 March 1996, no 93-12772 (unpublished)�� 57 Germany BAG 20.12.1963, I AZR 428/62�� 328 BGH 15.02.1967, VIII ZR 223/64�� 328 BGH 09.07.1981, NJW 81, 2801�� 328 BGH, 25.01.1982, VIII ZR 310/80 and Burgschaft, BVerfG 19 October 1993, BVerf 89 Parabolantenna, BVerfG 9 February 1994, BVerfGE 90�� 328 BGH 20.12.1996, V ZR 277/95�� 328 BGH 26.3.2003, XII ZR 167/01�� 328

Table of Cases

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BGH 19.5.2006, V ZR 40/05�� 328 BGH 24.10.2006, Az. X ZR 124/03�� 328 BGH 18.4.2007, XII ZR 139/05�� 328 BGH 6.5.2009, XII ZR 137/07�� 328 BGH 12.07.2011, IV ZR 20/53�� 328 BGH 13.12.2012, IX ZR 9/12�� 328 BGH 17.7.2013, VIII ZR 163/12�� 328 LG Hamburg 17.09.1996, 404 0 135/96�� 328 Hong Kong Cheng v Tse Wai Chun (2000) 3 HKLRD 418�� 477 Israel 10611/07 Antebi v Ben-David (22.2.2011, Supreme Court)�� 414 13381/09 TS v HD (18.6.2013)�� 417 1593/95 Pravda v Shwakat, Tak-Meh 2003(3) 1186�� 421 19270/03 KS v KF, Tak-Fam 2004 (4) 353�� 418 CA 10064/02 Migdal v Abu Hannah, PD 60(3) 13 (Supreme Court, 2005)�� 418 CA 1081/00 Avnaal v State of Israel, Pad-or 2005(1) 85�� 422 CA 11152/04 Ploni v Migdal, PD 61(3) 310 (2006)�� 418 CA 1303/09 Kadosh v Bikur Holim Hospital (Supreme Court, Israel, 5.3.2012)�� 422 CA 2034/98 Amin v Amin, PD 53(5) 69 (1999)�� 417 CA 243/83 Jerusalem (Municipality) v Gordon, PD 39(1) 113 (1985)�� 417 CA 429/82 Sohan v The State, PD 42(3) 733 (1988)�� 417, 422 CA 8037/06 Barzilaay v Prinir Ltd (Supreme Court, Israel, 4.9.2014)�� 424 Daaka v Carmel Hospital 53(4) PD 526 (Supreme Court, Israel, 1999)�� 415 HCJ 77/02 Ma’a’daney Aviv Osolovsky Ltd v The Chief Rabbinate Council, PD 56 249, 276 (2002, SC, Israel) (Cheshin J)�� 433 Plonit (K) v Jaack, Tak-Meh 2006 (1) 7885 (2006) (District Court, 8 March 2006)�� 420 New Zealand Attorney-General for Hong Kong v Reid [1994] 1 AC 324 (PC)�� 160 Balfour v Attorney-General [1991] 1 NZLR 519�� 467 Bell-Booth Group Ltd v Attorney-General [1989] 3 NZLR 148�� 467 Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 (NZCA)�� 97, 100 Bradley v Wingnut Films Ltd [1993] 1 NZLR 415�� 465 C v Holland [2012] NZHC 2155; [2012] 3 NZLR 672�� 389, 465 Canterbury Pipe Lines Ltd v Christchurch Drainage Board [1979] 2 NZLR 347�� 330 Holmes v Booth (1993) ANZ ConvR 491�� 329 Hosking v Runting [2003] 3 NZLR 385 (CA); [2005] 1 NZLR 1�� 213, 465 Livingstone v Roskilly [1992] 3 NZLR 230�� 97 McSweeney v Berryman [1980] 2 NZLR 168�� 470 New Zealand Mortgage Guarantee Co Ltd v Wellington Newspapers Ltd [1989] 1 NZLR 4�� 470 P v D [2000] 2 NZLR 591�� 470 R v Hallett [2013] 3 NZLR 407�� 465 Ron West Motors Ltd v Broadcasting Corporation of New Zealand (No 2) [1989] 3 NZLR 520�� 470

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Table of Cases

South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282�� 467 Tucker v News Media Ownership Ltd [1986] 2 NZLR 716�� 465 TV3 Network Services Ltd v Fahey [1999] 2 NZLR 129�� 470 Scottish Bank of East Asia Ltd v Scottish Enterprise [1996] CLC 351�� 326 Diesen v Samson 1971 SLT (Sh Ct) 49�� 426 Dunlop & Sons’ JF v Armstrong 1994 SLT 199�� 326 Forest v Scottish County Investment Co 1916 SC (HL) 28�� 327 Galloway (Earl) v M’Connell 1911 SC 846�� 326 Glen Clyde Whisky Ltd v Campbell Meyer & Co Ltd [2015] CSOH 97�� 327 Graham v Gordon (1843) 5 D 1207�� 326 Graham v United Turkey Red Co 1922 SC 533�� 326 Hayes v Robinson 1984 SLT 300�� 326 Hoult v Turpie 2004 SLT 308�� 327 Inveresk Plc v Tullis Russell Papermakers Ltd [2010] UKSC 19; 2010 SC (UKSC) 106�� 327 Johnston v Robertson (1861) 23 D 646�� 326 Laurie v British Steel Corp 1988 SLT 170�� 326 Macari v Celtic Football and Athletic Co Ltd 1999 SC 628�� 326 McNeill v Aberdeen City Council [2013] CSIH 102; 2014 SC 335�� 326 Pegler v Northern Agricultural Implement & Foundry Co Ltd (1877) 4 R 435�� 327 Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] SGCA 43; [2013] 4 SLR 193�� 337 Turnbull v M’Lean & Co (1874) 1 R 730�� 326 South Africa University of Pretoria v South Africans for the Abolition of Vivisection 2007 (3) SA 395 (O)�� 482 United Kingdom A Local Authority v W [2005] EWHC 1564 (Fam)�� 222 AAA Associated Newspapers Ltd [2012] EWHC 2103 (QB)�� 407 ABCD [2010] EWCA Crim 1622�� 208 Adam v Ward [1917] AC 309�� 53 Adamson v Jarvis (1827) 4 Bing 66�� 252, 253 AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35; [2013] 1 WLR 1889�� 56 Agricultores Federados Argentinos v Ampro SA [1965] 2 Lloyd’s Rep 157�� 335 AIC Ltd v ITS Testing Services (UK) Ltd, The Kriti Palm [2006] EWCA Civ 1601; [2007] 2 CLC 223�� 277 Al Saudi Banque v Clark Pixley [1990] BCLC 46; [1990] Ch 313; [1991] 2 QB 113 (CA)�� 266 Albright & Wilson UK Ltd v Biachem Ltd [2002] UKHL 37; [2003] 1 CLC 637�� 335 Alcock v Chief Constable of South Yorkshire Police [1992] 1 AC 310; [1991] 4 All ER 907 (HL)��52, 138, 444 Amey v Peter Symonds College [2013] EWHC 2788 (QB); [2014] IRLR 206�� 334 Andrew Risk v Rose Bruford College [2013] EWHC 3869 (QB)�� 253 Andrews v Reading BC [2005] EWHC 256 (QB)�� 219 Anns v Merton London Borough Council [1978] AC 728�� 137

Table of Cases

xxiii

Applause Store Productions Ltd v Raphael [2008] EWHC 1781 (QB)�� 475 Ashby v White (1703) 2 Ld Raym 938; 92 ER 126, rev’d 3 Ld Raym 320; 92 ER 710�� 396 Ashley v Chief Constable of Sussex Police [2008] UKHL 25; [2008] 1 AC 962�� 55 Ashworth v The Royal National Theatre [2014] EWHC 1176 (QB)�� 227 Astrazeneca UK Ltd v Albemarle International Corp & Anor [2011] EWHC 1574 (Comm); [2011] 2 CLC 252�� 336 AT v Dulghieru [2009] EWHC 225 (QB)�� 419 Attorney General of Trinidad and Tobago v Ramanoop [2005] UKPC 15; [2006] 1 AC 328��348, 349, 358, 399 Attorney-General (Belize) v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988�� 337 Attorney-General v Manchester Corporation [1893] 2 Ch 87�� 56 Backhouse v Bonomi (1861) 9 HL Cas 503�� 53 Barbudev v Eurocom Cable Management Bulgaria EOOD [2012] EWCA Civ 548�� 383 Barclays Bank plc v Grant Thornton UK LLP [1986] 2 All ER 145; [2015] 2 BCLC 537 (Comm)��269, 273, 275 Behn v Burness (1863) 3 B & S 751�� 333 Bell Electric Ltd v Aweco Appliance Systems Gmbh & Co KG [2002] EWHC 872 (QB); [2002] CLC 1246�� 338 Benedetti v Sawiris [2013] UKSC 50; [2014] 1 AC 938��41, 353, 423 Benkharbouche v Embassy of Republic of Sudan [2015] EWCA Civ 33; [2015] 3 WLR 301; [2015] ICR 793�� 215 Bestobell Paints Ltd v Bigg [1975] FSR 421�� 471 Bettini v Gye (1876) 1 QBD 183�� 333 Bhamra v Dubb [2010] EWCA Civ 13��411, 412, 421, 435 Bilta (UK) Ltd v Nazir (Jetivia SA v Bilta (UK)) [2016] AC 1; [2015] 2 WLR 1168�� 267 Bliss v Hall (1838) 4 Bing NC 183�� 53 Boehringer Ingelhein Ltd v Vetplus Ltd [2007] FSR 29�� 471 Bolton v Mahadeva [1972] 1 WLR 1009�� 334, 340 Bolton v Stone [1951] 1 All ER,�� 432 Bonnard v Perryman [1891] 2 Ch 269�� 471 Boone v Eyre (1779) 1 H Bl 273�� 331, 341 Borrowman Phillips & Co v Free & Hollis (1878) 4 QBD 500�� 336 Bournemouth University Higher Education Corpn v Buckland [2010] EWCA Civ 121; [2011] QB 323�� 338 Brabourne v Hough [1981] FSR 79�� 471 Bradburn v Great Western Railway Co (1874) LR 10 Ex 1�� 287 British Airways Board v Laker Airways Ltd [1985] AC 58�� 56 Broome v Cassell & Co Ltd [1972] AC 1027��362, 474, 485 Browne v Associated Newspapers Ltd [2007] EWHC 202 (QB); [2007] EMLR 19�� 478 Bryanston Finance Ltd v De Vries [1975] QB 703�� 470 Bunge SA v Nidera [2015] UKSC 43�� 99 Calvert v William Hill Credit Ltd [2008] EWCA Civ 1427; [2009] Ch 330�� 64 Cambridge Water Co Ltd v Eastern Counties Leather plc [1994] 2 AC 264�� 52 Campbell v MGN Ltd [2004] UKHL 22; [2004] 2 AC 457��213, 219, 228, 401, 408, 419, 433, 465 Camrose v Action Press unreported, 1937�� 149 Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1�� 60 Caparo Industries plc v Dickman [1990] 2 AC 605 (HL) 60�� 265

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Table of Cases

Carlill v Carbolic Smoke Ball [1893] 1 QB 256 (CA)�� 102 Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67�� 36 CBRE Loan Servicing Ltd v Gemini (Eclipse 2006-3) plc [2015] EWHC 2769 (Ch)�� 260 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1992] QB 656�� 329 Chappel & Co Ltd v Nestle Co Ltd [1960] AC 87�� 380 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101�� 44 Chastey v Ackland [1895] 2 Ch 389; [1897] AC 155�� 53 Chester v Afshar [2004] UKHL 41; [2005] 1 AC 134�� 8, 49, 413–414 Christie v Davey [1893] 1 Ch 316�� 53 Cleese v Clark [2003] EWHC 137 (QB)�� 480 Coleman v Attridge Law (A Firm) (C-303/06) [2008] All ER (EC) 1105�� 425 Colls v Home and Colonial Stores Ltd [1904] AC 179�� 53 Cook v Jennings (1797) 7 TR 381�� 332 Cooper v Turrell [2011] EWHC 3269 (QB)�� 473 Cornelius v Taranto [2001] EWCA Civ 1511; [2002] EMLR 6�� 475 Covington Marine Corp v Xiamen Shipbuilding Industry Co [2005] EWHC 2912 (Comm); [2006] 1 CLC 624�� 340 Cranston v Marshall (1850) 5 Exch 395�� 333 Cream Holdings v Banerjee [2004] UKHL 44; [2005] 1 AC 253�� 477 Crehan v Inntrepreneur Pub Co [2006] UKHL 38; [2007] 1 AC 333�� 49 Cresswell v Board of Inland Revenue [1984] ICR 508�� 334 Crowhurst v Amersham Burial Board (1878) 4 Ex D 5�� 143 Crown Prosecution Service v Eastenders Group [2014] UKSC 26; [2015] AC 1�� 41 Cruise v Southdown Press Pty Ltd (1993) 26 IPR 125�� 463 Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181�� 253–254, 268 Dakin & Co Ltd v Lee [1916] 1 KB 566�� 333, 334 Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC Civ 63; [2006] 2 P & CR 9�� 330 Dalton v Henry Angus & Co (1881) 6 App Cas 740�� 53 Davie v New Morton Board Mills Ltd [1959] AC 604�� 283 Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699�� 338 Dennis & Sons Ltd v Cork SS Co Ltd [1913] 2 KB 393�� 336 Dennis v Ministry of Defence [2003] EWHC 793 (QB); [2003] Env L R 34�� 219 Denton v TH White Ltd [2014] EWCA Civ 906�� 531 Derry v Peek (1888) LR 14 App Cas 337 (HL); (1887) LR 37 Ch D 541��238, 251, 252, 253 Deutsche Trustee Company Limited v Cheyne Capital (Management) UK (LLP), Deco 15—Pan Europe 6 Limited [2015] EWHC 2282 (Ch)�� 260 Digby v Financial News Ltd [1907] 1 KB 502�� 477 Dimond v Lovell [2000] 2 All ER 897�� 285 Dingle v Associated Newspapers Ltd [1964] AC 371�� 473 Director General Office of Fair Trading v First National Bank [2002] 1 AC 481�� 96 Dixons (Scholar Green) Ltd v JL Cooper Ltd [1970] RTR 222�� 350–351 Donoghue v Stevenson [1932] UKHL 100; [1932] AC 562��47, 137, 147, 229, 553 DRC Distribution Ltd v Ulva Ltd [2007] EWHC 1716 (QB)�� 336 Dudley v Dudley (1705) 24 ER 118 (Ch)�� 178, 179 Dulieu v White & Sons [1901] 2 KB 699 (CA)�� 443 Eastern Counties Railway Co v Philipson (1855) 16 CB 2�� 339

Table of Cases

xxv

Eaton Mansions (Westminster) Ltd v Stinger Compania de Inversion SA [2013] EWCA Civ 1308�� 352 Edge v Boileau (1885) 16 QBD 117�� 340 Edwards v Canada [1929] UKPC 86; [1930] AC 124�� 553 Edwards v Edwards [1958] 2 ALL ER 179�� 537 Electra Private Equity Partners v KPMG Peat Marwick [2001] 1 BCLC 589 (CA)�� 267 Ellis v Hamlen (1810) 3 Taunt 52�� 332 Eshelby v Federated European Bank Ltd [1932] 1 KB 423�� 334 Esso Petroleum Co Ltd v Niad Ltd unreported, 22 November 2001�� 329 Farley v Skinner [2001] UKHL 49; [2002] 2 AC 732�� 218, 423 Fercometal SàRL v Mediterranean Shipping Co SA [1989] AC 788��329, 330, 336, 337–338 Fletcher v Rylands (1866) LR 1 Ex 279�� 143 Foskett v McKeown [2001] 1 AC 102��156–157, 158, 159, 167, 168 Fowler v Hollins (1875) LR 7 HL 757�� 57 Fraser v Evans [1969] 1 QB 349�� 470 Freeman v Taylor (1831) 8 Bing 124�� 332 Geys v Société Générale, London Branch [2012] UKSC 63; [2013] 1 AC 523�� 341 Giles v Walker (1890) 24 QBD 656�� 143, 144 Glaholm v Hays (1841) 2 M & G 257�� 332, 333 Goldeneye (International) Ltd v Telefonica UK Ltd [2012] EWHC 723; [2012] RPC 28 (Ch)�� 217 Goodisson v Nunn (1792) 4 TR 761�� 332 Google Inc v Vidal-Hall & Ors [2015] EWCA Civ 311�� 419, 466 Graves v Legg (1854) 9 Exch 709�� 332 Greenaway v Johnson Matthey Plc [2016] EWCA Civ 408�� 454 Greene King Plc v Quisine Restaurants Ltd [2012] EWCA Civ 698�� 339 Greene v Associated Newspapers Ltd [2005] QB 972�� 470 Greer v Alstons Engineering Sales and Services Ltd (Trinidad and Tobago) [2003] UKPC 46�� 350 Gregg v Piggott [2012] EWHC 732 (Ch)�� 232 Groves v Lord Wimborne [1898] 2 QB 402�� 65 Gulati v MGN Ltd [2015] EWHC 1482 (Ch); aff ’d [2015] EWCA Civ 1291��390, 401, 408, 434 Gulf Oil (Great Britain) Ltd v Page [1987] Ch 327�� 471 Gwylliam v West Hertfordshire NHS Trust [2002] EWCA Civ 1041; [2003] QB 443�� 285 Hadley v Baxendale (1854) 9 Ex 341�� 349 Halsey v Esso Petroleum Co Ltd [1961] 1 WLR 683�� 53 Hambrook v Stokes Brothers [1925] 1 KB 141 (CA)�� 443 Hamilton Jones v David & Snape (a Firm) [2003] EWHC 3147 (Ch)�� 423 Hanley v Pease & Partners Ltd [1915] 1 KB 698�� 329 Harris v Evans [1998] 3 All ER 522 (CA)�� 18 Harrison v Southwark and Vauxhall Water Co [1891] 2 Ch 409�� 53 Hartley v King Edward VI College [2015] EWCA Civ 455; [2015] IRLR 650�� 340 Hay (or Bourhill) v Young [1942] 2 All ER 396 (HL)�� 455 Healthcare at Home Ltd v The Common Services Agency [2014] UKSC 49�� 252 Heane v Rogers (1829) 9 B & C 577; 109 ER 215�� 292 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL)�� 90, 265 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145�� 265 Henthorn v Central Electricity Generating Board [1980] IRLR 361�� 334 Herbage v Pressdram Ltd [1984] 2 All ER 769�� 470 Hicks v Chief Constable of the South Yorkshire Police [1991] UKHL 9�� 435

xxvi

Table of Cases

Hill v Chief Constable of West Yorkshire [1989] AC 53�� 138 HKF Hurst v Bryk [2002] 1 AC 185�� 331 Hoare v Rennie (1859) 5 H & N 19�� 332 Hochster v De la Tour (1853) 2 E & B 678�� 333 Holley v Smyth [1998] QB 726�� 470 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26�� 331 Hounga v Allen [2014] UKSC 47; [2014] 1 WLR 2889�� 45 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574�� 277 Hubbard v Vosper [1972] 2 QB 84�� 270 Hunt v Severs [1994] 2 AC 350�� 283 Hunter v Canary Wharf Ltd [1997] AC 655��52, 219, 435 Hyundai Merchant Marine Co Ltd v Karander Maritime Co Inc [1996] CLC 749�� 341 In re T (Adult: Refusal of Treatment) [1993] Fam 95�� 425 Interbrew v Financial Times Ltd [2002] EWCA Civ 274; [2002] EMLR 24�� 475 Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 (HL)�� 252 Jackson v Horizon Holidays [1975] 3 All ER 92�� 423 Jackson v Murray [2015] UKSC 5�� 118 Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125�� 338–339 Jameel (Yousef) v Dow Jones & Co Inc [2005] EWCA Civ 75�� 529 Jameel v Wall Street Journal Europe SprL [2007] 1 AC 359�� 473 John v MGN Ltd [1997] QB 586�� 52 Johnson v UNISYS Ltd [2003] 1 AC 518�� 423 Johnston v NEI International Combustion Limited [2007] UKHL 39�� 435 Jolley v Sutton London Borough Council [2000] 1 WLR 1082 (HL)�� 64 Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850�� 341 Karim v Wemyss [2016] EWCA Civ 27�� 277 Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223�� 159 Kennedy v Charity Commissioners [2014] UKSC 20; [2015] 1 AC 455�� 221 Khashoggi v Smith (1980) 12 SJ 149�� 475 Killick v PricewaterhouseCoopers [2001] 1 BCLC 65�� 275 Kingston v Preston (1773) 2 Doug 684�� 332 Kish v Charles Taylor, Sons & Co [1912] AC 604�� 336 Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147; [2008] 1 CLC 307�� 342 Kronman & Co v Steinberger (1922) 10 LlLLR 39 (KB)�� 336 Kronos Worldwide Ltd v Sempra Oil Trading SàRL [2004] EWCA Civ 3; [2004] 1 CLC 136�� 335 Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5) [2002] 2 AC 122�� 351, 360 Kuwait Airways Corporation v Iraqi Airways Company [2002] EWHC 1626�� 360 Law Society v KPMG Peat Marwick [2000] 1 WLR 1921 (CA)�� 268 Lawrence v Fen Tigers Ltd [2014] UKSC 13; [2014] AC 822�� 53 Les Laboratoires Servier v Apotex Inc [2014] UKSC 55; [2015] AC 430�� 45 Lister v Romford Ice Storage Co Ltd [1957] AC 555�� 283 Livingston v Rawyards (1880) LR 5 App Cas 34�� 181 LLP v Viscount Reidhaven’s Trustees [2014] AC 1093�� 277 Lomas & Ors v JFB Firth Rixson Inc [2012] EWCA Civ 419; [2012] 1 CLC 713�� 335 London Gas-Light Co v Chelsea Vestry (1860) 8 CB NS,�� 340 Lord Napier and Ettrick v Hunter [1993] AC 713�� 268 Lownds v Home Office [2002] EWCA Civ 365�� 516

Table of Cases

xxvii

Lumba v Secretary of State for the Home Department [2011] UKSC 12; [2012] 1 AC 245��343, 356–357, 399, 422 Lumley v Gye (1853) 2 El & Bl 216; 118 ER 749�� 52 Lynch v Knight (1861) 11 ER 854�� 441–442 Macintosh v Midland Counties Ry Co (1845) 14 M & W 548�� 341 Mackay v Dick (1881) 6 App Cas 251 (HL)�� 96 MAN Nutzfahrzeuge AG v Freightlinger Ltd [2007] EWCA Civ 910; [2008] 2 BCLC 22�� 268–269 MAN v Freightliner [2005] EWHC 2347 (Comm)�� 275, 276 Manchester CC v Pinnock [2010] UKSC 45; [2011] 2 AC 104�� 224 Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholas H) [1996] AC 211�� 59 Marcic v Thames Water Utilities Ltd [2003] UKHL 66; [2004] 2 AC 42�� 219 Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 2 Lloyd’s Rep 509 (CA); [1980] 1 All ER 213�� 192 Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956�� 57 May and Butcher Ltd v R [1934] 2 KB 17�� 383 Mbasogo v Logo Ltd [2007] 2 WLR 1062�� 466 McDonald v McDonald [2014] EWCA Civ 1049; [2015] Ch 357�� 224 Mcfarlane v Tayside Health Board [2000] 2 AC 59�� 64 McKennitt v Ash [2008] EWCA Civ 1714; [2008] QB 73�� 428, 472 McLoughlin v O’Brian [1983] 1 AC 410; [1982] 2 All ER 298 (HL)�� 61, 444 Menelaou v Bank of Cyprus [2015] UKSC 66�� 36 Merest v Harvey (1814) 5 Taunt 442; 128 ER 761�� 349, 357 Mersey Steel & Iron Co Ltd v Naylor Benzon & Co (1883–84) LR 9 App Cas 434�� 329 Merson v Cartwright and the Attorney General of the Bahamas [2005] UKPC 38�� 358 Michael v Chief Constables of South Wales and Gwent [2015] UKSC 2; [2015] 1 AC 1732�� 218, 227 Microdata Information Services Ltd v Rivendale Ltd [1991] FSR 681�� 471 Milne v Express Newspapers [2004] EWCA Civ 664; [2005] 1 All ER 1021�� 494, 496 Ministry of Defence v Radclyffe [2009] EWCA Civ 635�� 253 Mitchell (AP) v Glasgow City Council [2009] AC 874�� 265 Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537�� 531 Monarch SS Co v Karshamns Oljefabriker [1949] AC 196�� 349 Monson v Tussauds Ltd [1894] 1 QB 671�� 470 Montgomery v Lanarkshire Health Board (Scotland) [2015] UKSC 11�� 415 Moore Stephens v Stone Rolls Limited [2009] 1 AC 1391 (HL)�� 265 Morgans v Launchbury [1973] AC 127�� 283 Morris v Ford Motor Co Ltd [1973] QB 792 (CA)�� 285 Morton v Lamb (1797) 7 TR 125�� 335 Mosley v NGN Ltd [2008] EWHC 1777 (QB); [2008] EMLR 20�� 473 MRI Trading AG v Erdenet Mining Corpn LLC [2013] EWCA Civ 156�� 383 MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2015] EWHC 283 (Comm)�� 341 Munro v Butt (1858) 8 E & B 738�� 332, 334 Murphy v Brentwood District Council [1991] 1 AC 398 (HL)�� 51 Murray v Ministry of Defence [1988] 1 WLR 692 (HL)�� 52 Myers v Elman [1940] AC 282�� 537 Nail v News Group Newspapers [2004] EMLR 19�� 496 National Westminster Bank Plc v Morgan [1985] 1 AC 686 (HL) 378 Network Rail Infrastructure Limited (formerly Railtrack PLC) v CJ Morris (t/a Soundstar Studio) [2004] EWCA Civ 172; [2004] Env LR 861�� 147

xxviii

Table of Cases

NPower Direct Ltd v South of Scotland Power Ltd [2005] EWHC 2123 (Comm); (2005) 102(43) LSG 29�� 329 O (A Child) v Rhodes [2015] UKSC 32; [2016] AC 219�� 52 OBG Ltd v Allan [2007] UKHL 21; [2008] AC 1�� 330 Ollive v Booker (1847) 1 Exch 416�� 332 P v Cheshire West & Chester Council; P & Q v Surrey County Council [2014] UKSC 19�� 142 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854�� 378 Pacific Associates Inc v Baxter [1989] 2 All ER 159�� 274–275 Page v Smith [1996] 1 AC 155��52, 62, 444, 452 Penarth Dock Engineering v Pounds [1963] 1 Lloyd’s Rep 359�� 8 Performance Cars Ltd v Abraham [1962] 1 QB 33�� 361 Phelps v Hillingdon London Borough Council [2000] 3 WLR 776 (HL)�� 18 Plato Films Ltd v Speidel [1961] AC 1090�� 464 Pordage v Cole (1669) 1 Wms Saund 319�� 331 Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363�� 286 Poussard v Speirs & Pond (1876) 1 QBD 410�� 331 Prehn v Royal Bank of Liverpool (1870) LR 5 Ex 92�� 349 Pritchard v Co-operative Group Ltd [2011] EWCA Civ 329; [2012] QB 320�� 59 PT Berlian Laju Tanker TBK & Anor v Nuse Shipping Ltd [2008] EWHC 1330 (Comm); [2008] 1 CLC 967�� 336 R (Nicklinson) v Ministry of Justice [2014] UKSC 38; [2012] EWHC 2381 (Admin); [2012] HRLR 32�� 30 R (on the application of Catt) (Respondent) v Commissioner of Police of the Metropolis [2015] UKSC 9�� 419 R (on the application of Lumba (Congo)) v Secretary of State for the Home Department [2011] UKSC 12; [2012] 1 AC 245��343, 356–357, 399, 422 R (on the application of the British Bankers Association) v Financial Services Authority and another [2011] EWHC 999 (Admin)�� 239 R (Prudential plc) v Special Commissioner of Income Tax [2013] UKSC 1; [2013] 2 AC 185�� 30, 32 R v Gnango [2011] UKSC 59; [2012] 1 AC 827�� 206 R v Hyde [1991] 1 QB 134; [1990] 3 All ER 892 (CA)�� 207 R v Jogee [2016] UKSC 8��206, 207, 208 R v Powell: R v English [1999] 1 AC 1�� 207 R v Secretary of State for Transport, ex p Factortame Ltd (No 5) [2000] 1 AC 524�� 49 Rabone and another v Pennine Care NHS Foundation Trust [2012] 2 AC 72�� 142 Ram Media Ltd (In Administration) v Ministry of Culture of the Hellenic Republic (Secretariat General of Sport) [2008] EWHC 1835 (QB)�� 341 Rapier v London Tramways [1893] 2 Ch 588�� 52 Re B (adult, refusal of medical treatment) [2002] 2 All ER 449�� 425 Re Lind [1915] 2 Ch 345 (CA)�� 268 Re MB (Medical Treatment) [1997] 2FLR 426�� 426 Re: S (FC) (Identity: Restrictions on Publication) [2004] UKHL 47; [2005] 1 AC 593�� 222 Reaney v University Hospital of North Staffordshire NHS Trust [2015] EWCA Civ 1119�� 361 Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52; [2004] 1 AC 309��8, 49, 361,402, 415 Relfo Ltd v Varsani [2014] EWCA Civ�� 41 Representative Claimants (Gulati) v MGN Ltd [2015] EWCA Civ 1291�� 361 Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19; [2008] 1 AC 1174�� 50

Table of Cases

xxix

Reynolds v Times Newspapers Ltd [2001] AC 127�� 474 Rhodes v OPO & Anor [2015] UKSC 32; [2016] AC 219�� 406, 442 Richardson v Howie [2004] EWCA Civ 1127; [2005] PIQR Q48�� 52, 433 Ridehalgh v Horsefield [1994] Ch 205�� 538, 539 Roberts v Brett (1859) 6 CB (NS) 611; (1865) 11 HLC 337��332, 340, 341 Robinson v Kilvert (1889) LR 41 Ch D 88�� 53, 147 Rooke’s Case (1597) 5 C Rep 99b; 77 ER 209 (KB)�� 180 Rookes v Barnard [1964] AC 1129�� 358, 485 Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA)�� 430 RST v UVW [2009] EWHC 2448 (QB); [2010] EMLR 13�� 478 Rylands v Fletcher [1868] UKHL 1; (1868) LR 3 HL 330��41, 142, 143 Saunders v Edwards [1987] 1 WLR 1116�� 430 Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235�� 339 Secretary of State for the Environment, Food and Rural Affairs v Meier [2009] UKSC 11; [2009] 1 WLR 2780�� 56 Secretary of State for the Home Department v Robb [1995] 1 All ER 677�� 429 Securities and Investments Board v Pantell SA and others (No 2) [1993] Ch 256�� 239 Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34; [2008] 1 AC 561�� 353, 359 Service Corp International Plc v Channel Four Television Corp [1999] EMLR 83�� 471, 472 Shadforth v Higgin (1813) 3 Camp 385�� 332 Shepherd v H West & Son Ltd [1963] UKHL 3; [1964] AC 326�� 349 Sim v H J Heinz Co Ltd [1959] 1 All ER 547�� 471 Simmons v Castle [2012] EWCA Civ 1039�� 517 Siskina (Cargo Owners) v Distos Compania Naviera SA, The Siskina [1979] AC 210�� 56 Slazengers Ltd v Gibbs (1916) 33 TLR 35�� 149 Smith v Chief Constable of Sussex Police heard jointly with Van Colle v Chief Constable of the Hertfordshire Police [2008] UKHL 50; [2009] 1 AC 225�� 227 Smith v Eric S Bush [1990] 1 AC 831��270, 273, 274, 285, 428 Smith v Smith [1957] 2 All ER 397�� 292 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191�� 64 South Hetton Coal Co Ltd v North-Eastern News Association Ltd [1894] 1 QB 133�� 477 Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27�� 61 Spring v Guardian Assurance Plc [1995] 2 AC 296��18, 50, 467 St Alban’s (Duke) v Shore (1789) 1 H Bl 270�� 332 Standard Life Health Care Ltd v Gorman [2009] EWCA Civ 1292; [2010] IRLR 233�� 335 Stanton v Richardson (1873–74) LR 9 CP 390�� 336 Staunton v Wood (1851) 16 QB 638�� 332 Steel v Joy[2004] EWCA Civ 576; [2004] 1 WLR 3002�� 361 Stocznia Gdanska SA v Latvian Shipping Co (No 2) [2002] 2 Lloyd’s Rep 436�� 329 Stone & Rolls Ltd v Moore Stephens [2008] EWCA Civ 644; [2009] 1 AC 1391�� 265, 267 Stroms Bruks Aktie Bolag v Hutchison [1905] AC 515�� 349 Sturges v Bridgman (1879) 11 Ch D 852�� 53 Subiah v Attorney General of Trinidad and Tobago [2008] UKPC 47�� 358 Sumpter v Hedges [1898] 1 QB 673�� 334 Sunrise Brokers LLP v Rodgers [2014] EWHC 2633 (QB); [2014] IRLR 780; appeal dismissed, [2014] EWCA Civ 1373, [2015] ICR�� 272, 335 Sutherland v Stopes [1925] AC 47�� 475 T Mahesan S/O Thambiah Appellant v Malaysia Government Officers’ Co-Operative Housing Society Ltd [1979] AC 374�� 353

xxx

Table of Cases

Takitota v Attorney General of the Bahamas [2009] UKPC 11�� 358 Tang Man Sit v Capacious Investments Ltd [1996] AC 514�� 355 Taylor v Laird (1865) 25 LJ Ex 329�� 424 Terry v Duntze (1795) 2 H Bl 389�� 341 Terry v Persons Unknown [2010] EWHC 119 (QB); [2010] EMLR 16�� 472 Terry v Trafalgar Insurance (1970) 1 Lloyds Rep 524�� 292, 294 The Aegnoussiotis [1977] 1 Lloyd’s Rep 268�� 330 The Agios Giorgis [1976] 2 Lloyd’s Rep 192��328, 330, 340 The Earl of Oxford’s Case (1615) 21 ER 485 (Ch)�� 180 The Greta Holme [1897] AC 596�� 350 The Hansa Nord [1976] QB 44�� 331 The Karin Vatis [1988] 2 Lloyd’s Rep 330�� 336 The Marpessa [1907] AC 241�� 350 The Mediana [1900] AC 113��350, 351, 359, 360 The New Prosper [1991] 2 Lloyd’s Rep 93�� 335 The Rugby Football Union v Consolidated Information Services Ltd (Formerly Viagogo Ltd) [2012] UKSC 55; [2012] 1 WLR 3333�� 217 The Santa Clara [1996] AC 800�� 338, 372 The Susquehanna [1926] AC 655�� 349 Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106�� 339 Tracey v Cambridge University Hospitals NHS Foundation Trust [2014] EWCA Civ 822�� 423 Trans Trust SpRL v Danubian Trading Co Ltd [1952] 2 QB 297�� 335 Transco plc v Stockport Metropolitan Borough Council [2003] UKHL 61; [2004] 2 AC 1�� 51 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61�� 252 United Scientific Holdings Ltd v Burnley Borough Council [I978] AC 904�� 173 Universal Cargo Carriers Corp v Citati [1957] 2 QB 401�� 333 Valeo Matériaux de Frictions SA v VTL Automotive Ltd [2005] EWHC 1855 (TCC)�� 340 Victorian Railways Commissioner v Coultas (1888) 13 App Cas 222 (PC)�� 443 Vidal-Hall v Google Inc [2015] EWCA Civ 311; [2015] 3 WLR 409�� 419, 466 Vowles v Evans[2002] EWHC 2612 (QB); [2003] 1 WLR 1607�� 285 Wainwright v Home Office [2001] EWCA Civ 2081; [2004] 2 AC 406��52, 435, 466 Walford v Miles [1992] 2 AC 128��95, 97, 380 Walker v Alemite Corp (1933) 49 CLR 643�� 204 Wallersteiner v Moir [1974] 3 All ER 217�� 470 Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104�� 359 Weller v Foot and Mouth Disease Research Institute [1966] 1 QB 569�� 442 Wertheim v Chicoutimi Pulp Co [1911] AC 301 (PC)�� 354 Westcott v Westcott [2008] EWCA Civ 818; [2009] QB 407�� 53 Western Front Ltd v Vestron Inc [1987] FSR 66�� 471 White and Carter (Councils) Ltd v McGregor [1962] AC 413�� 44 White v Chief Constable of South Yorkshire Police [1999] 2 AC 455�� 444 White v Jones [1995] 2 AC 207��276, 268, 274 Whiteley v Adams (1863) 15 CB (NS) 415; (1863) 143 ER 838�� 477 Wilkinson v Downton [1897] 2 QB 57��52, 53, 441, 455 With v O’Flanagan [1936] Ch 575�� 277 Withers v Reynolds (1831) 2 B & Ad 882�� 333 Woodward v Hutchins [1977] 2 All ER 751�� 471 Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70�� 16 X v Y [2004] EWCA Civ 662; [2004] ICR 1634�� 229

Table of Cases

xxxi

Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37�� 416 Yorkbrook Investments Ltd v Batten (1986) 52 P & CR 51�� 340 Your Response Ltd v Datateam Business Media Ltd [2014] EWCA Civ 281; [2015] QB 41�� 330 United States of America Abu Dhabi Commercial Bank v Morgan Stanley & Co 651 F Supp 2d 155 (SD, New York, 2009); 888 F Supp 2d 431 (SD, New York, 2012)�� 262 AshBritt Inc v US 87 Fed Cl 344 (2009)�� 194 Barclays Capital Inc v Theflyonthewall.com Inc 650 F 3d 876 (2d Cir 2011)�� 190 Beatty v Guggenheim Exploration Co 225 NY 380 (1919)�� 158 Beavers v West Penn Power Co 436 F 2d 869 (1971)�� 58 Block v McDonald’s Corporation (No 1-03-1763 App Ct Ill, 2005)�� 411 Boomer v Atlantic Cement 257 NE 2d 870 (NY 1970)�� 183, 191 California Public Employee’s Retirement System v Moody’s (CalPERS) Order of demurrer (motion to dismiss) No 09-490241 (Calif CA, 1st District, 2009)�� 262 Campbell v Seaman 63 NY 568 (1876)�� 191 Cheney Bros v Doris Silk Corp 35 F 2d 279 (2d Cir 1929)�� 189 Consolidated Rail Corp v Gottsha 512 US 532 558 (1994)�� 446 eBay v MercExchange 547 US 388 (2006)�� 190, 193 Ellibee v Hiland Dairy Foods Co, LLC 166 P 3d 450 (Kan Ct App 2007),�� 411 Friedman v Merck & Co 107 Cal App 4th 454 (2003)�� 411 Grupo Mexicano de Desarrollo SA v Alliance Bond Fund Inc 527 US 308 (1999)�� 192 Gupta v Asha Enterprises LLC 27 A 3d 953 (NJ Super Ct App Div 2011)�� 411 Harrigan v Gilchrist 99 NW 909�� 179 International News Service v Associated Press 248 US 215 (1918)�� 189 King County 863 F Supp 2d 288 (SD, New York, 2012)�� 262 Kopka v Bell Telephone Co of Pennsylvania 371 Pa 444; 91 A 2d 232 (1952)�� 58 Lucas v Hamm 364 P 2d 685 (Cal 1961)�� 188 Lugenbuhl v Dowling 701 So 2d 447 (La 1997)�� 415 MacPherson v Buick Motor Co 217 NY 382; 111 NE 1050 (1916)�� 553 Marengo Cave Co v Ross, 10 NE 2d 917 (Ind 1937)�� 181 Molien v Kaiser Found Hosps 616 P 2d 813 (Cal 1980)�� 452 Monsanto Co v Geertson Seed Farms 547 US 139 (2010)�� 193 Morgan v High Penn Oil Co 77 SE 2d 682 (NC 1953)�� 191 National Basketball Association v Motorola 105 F 3d 841 (2d Cir 1997)�� 190 National Savings Bank of DC v Ward 100 US 195 205 (1879)�� 188 Ohralik v Ohio State Bar Ass’n 436 US 447 (1978)�� 429 Phinney v Vinson 605 A 2d 849 (Vt 1992)�� 292 Popovitch v Denny’s Restaurant 2005 Cal App Unpub LEXIS 7173 (2005)�� 412 Riggs v Palmer 22 NE 188 (NY 1889)�� 177, 193 Robinson v Cragg (2011) 41 Alta L R (5th) 214�� 296–297 Rogers v Elliott 146 Mass 349 15 NE 768 (1888)�� 456 Senesac v Associates in Obstetrics and Gynecology 449 A 2d 900 (Vt 1982)�� 292 Shelley v Kraemer 334 US 1 (1948)�� 214 Snyder v Phelps 131 S Ct 1207 (2011)�� 82 Swift v Hawkins 1 Dall 17 (Pa 1768)�� 178 United States of America v McGraw-Hill Companies Inc, et al No 13-0779 (CD, Calif, 2013)�� 262 Warner Bros Records v Walker 704 F Supp 2d 460 (WD Pa 2010)�� 194

xxxii

TABLE OF LEGISLATION

Australia Access to Justice (Civil Litigation Reforms) Amendment Act 2009 (Cth)�� 541 Australia Act 1986 (Cth)�� 90 Australian Consumer and Fair Trading Act 2012 (Vic)�� 99 Australian Securities and Investments Commission Act 2001 (Cth), s 12DA�� 255 Building and Construction Industry Payments Act 2004 (Qld), ss 19–20�� 329 Civil Law (Wrongs) Act 2002 (ACT), 15�� 132 ss 12–14�� 488 s 127�� 468 s 135�� 468 s 139A(1)(b)�� 476 s 139A(3)�� 476 s 139A(3)(h)�� 476 ss 139B(1)(b), (2)(b), (3)(b)�� 477 Civil Liability Act 1936 (SA), s 75�� 488 Civil Liability Act 2002 (NSW)�� 132 s 30�� 138 ss 67–69�� 488 s 68�� 295 ss 69–71�� 295 Civil Liability Act 2002 (Tas), ss 6A-7�� 488 Civil Liability Act 2002 (WA), ss 5AF–5AH�� 488 Civil Liability Act 2003 (Qld)�� 132 s 9�� 16 ss 45–49�� 312 ss 68–72�� 488 ss 72A–72D�� 488 Civil Procedure Act 2005 (NSW), s 56�� 540 Civil Procedure Act 2010 (Vic) s 16�� 541 ss 17–19�� 544 s 21�� 544 s 24�� 541 ss 18–25�� 541 Commonwealth of Australia Constitution Act 1900, s 109�� 133 Construction Industry Security of Payment Act 1999 (NSW), ss 15–16�� 329 Corporations Act 2001 (Cth), ss 1041E, 1041H�� 255 Crimes Act 1914 (Cth)�� 127 Criminal Code Act 1995 (Cth), ss 11.2A(1)(a)(ii) and (3)�� 207 Defamation Act 2006 (NT), 15��468, 476, 477, 485

xxxiv

Table of Legislation

Defamation Act 1889 (Qld), s 15�� 468 Defamation Act 1957 (Tas), s 15�� 468 Defamation Act 1974 (NSW), s 15�� 468 Defamation Act 2005 (NSW) s 2�� 485 s 3�� 491 s 3(c)�� 497 s 7�� 485 s 12(2)�� 492 s 13(4)�� 487 s 14�� 492 s 14(2)�� 492 s 15(1)(e)�� 492 s 15(1)(d)�� 492 s 15(1)(g)�� 492 s 18(1)�� 492 s 18(1)(b)�� 492 s 18(2)(a) s 18(2)(b) s 19�� 488 s 20�� 491, 498 s 25�� 468 s 30(1)(b)�� 476 s 30(3)�� 476 s 30(3)(h)�� 476 s 31(1)(b), 31(2)(b), 31(3)(b)�� 477 Defamation Act 2005 (Qld) s 2�� 485 s 30(1)(b)�� 476 s 30(3)�� 476 s 30(3)(h)�� 477 ss 31(1)(b), (2)(b), (3)(b)�� 477 Defamation Act 2005 (SA) s 2�� 485 s 23�� 468 s 28(1)(b), 28(3)�� 476 s 28(3)(h)�� 477 ss 29(1)(b), (2)(b), (3)(b)�� 477 Defamation Act 2005 (Tas) s 2�� 485 s 25�� 468 ss 30(1)(b), 30(3)�� 476 s 30(3)(h)�� 477 ss 31(1)(b), (2)(b), (3)(b)�� 477 Defamation Act 2005 (Vic) s 2�� 485 s 25�� 468 s 30(1)(b), 30(3)�� 476 s 30(3)(h)�� 477 s 31(1)(b),(2)(b), (3)(b)�� 477

Table of Legislation

xxxv

Defamation Act 2005 (WA) s 2�� 485 s 25�� 468 s 30(1)(b)�� 476 s 30(3)�� 476 s 30(3) (h)�� 477 s 31(1)(b), (2)(b), (3)(b)�� 477 Defamation Act 2006 (NT) s 22�� 468 s 27(1)(b)�� 476 s 27(3)(h)�� 476 ss 28(1)(b), (2)(b), (3)(b)�� 477 Federal Court of Australia Act 1976 (Cth), s 37M�� 540 Insurance Contracts Act 1984 (Cth), s 54�� 294 Legal Profession Act 2007 (Qld), ss 345–347�� 314 Mental Health Act 1990 (NSW), s 20�� 140 Personal Injuries (Civil Claims) Act 2003 (NT)�� 132 Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 11–13�� 132, 488 Personal Injuries Proceedings Act 2002 (Qld)�� 132 Sale of Goods Act 1896 (Qld) s 14(3)�� 342 s 30�� 335 s 37�� 342 Sale of Goods Act 1923 (NSW) s 16(3)�� 342 s 31�� 335 s 38(1)�� 342 Social Security Act 1991 (Cth)�� 304 s 17(1)�� 304 s 17(2)�� 304 s 17(3)(b)�� 304 ss 17(1), (8)�� 304 s 1169�� 304 s 1170(1)–(3)�� 304 s 1170(4)�� 304 s 1184K�� 305 Trade Practices Act 1975 (Cth), s 46�� 293 Trusts Act 1973 (Qld), s 22�� 166 Wrongs Act 1958 (Vic)�� 132 ss 14I–14J�� 488 Subordinate Legislation Legal Profession Uniform Conduct (Barristers) Rules 2015 (NSW and Vic), r 58(e)�� 544 Legal Profession Uniform Conduct (Solicitors) Rules 2015 (NSW and Vic), r 17.2, rr 30 and 31�� 544, 545 Uniform Civil and Procedural Rules (Qld), r 5�� 540 Uniform Civil Procedure Rules 2005 (NSW) r 21.2�� 530 r 29.15�� 483

xxxvi

Table of Legislation

Belgium Pledge Act of 11 July 2013�� 128 Canada Apology Act 2006 (BC)�� 295 s 1�� 295 s 2(1)(c)�� 298 Apology Act 2007 (Man)�� 295 Apology Act 2008 (NS)�� 295 Apology Act 2009 (New)�� 295 Apology Act 2009 (Ont)�� 295 Apology Act 2013 (NWT)�� 295 Civil Code of Québec 1991 s 3�� 466 ss 35–37�� 466 ss 1457�� 484 Constitution Act 1982 (Canada Act 1982 (UK), c 11, Schedule B, Part I)�� 399 Defamation Act 1987 (Man) s 4�� 486 s 16�� 487 s 17�� 490 Defamation Act 1988 (PEI) s 4�� 486 s 17�� 487 s 18�� 490 Defamation Act 1989 (NS) s 5�� 486 s 16�� 494 s 21�� 487 s 22�� 490 Defamation Act 1990 (New) s 5�� 486 s 18�� 487 s 19�� 490 Defamation Act 2000 (Alb) s 4�� 486 s 15�� 487 s 16�� 490 Defamation Act 2011 (NB) s 4�� 486 s 15�� 487 s 16�� 490 Evidence Act 2000 (Alb) s 26�� 295, 297 s 26(1)�� 488 s 26(2)(c)�� 295

Table of Legislation

xxxvii

Evidence Act 2006 (Sas), s 23(1)�� 295 Health Services Act 1988 (PEI) s 26�� 488 s 32�� 295, 488 Legal Treatment of Apologies Act 2010 (Nun)�� 295 Libel and Slander Act 1978 (Sas) s 4�� 486 s 7�� 487 s 8�� 490 Libel and Slander Act 1990 (Ont) s 5�� 486 s 9�� 487 s 18�� 490 Libel and Slander Act 1996 (BC) s 6�� 487 s 7�� 490 s 10�� 486 Personal Health Information Protection Act 2004 (Ont) sch A�� 394 s 18�� 401 s 18(1)�� 401 s 29�� 401 Personal Information Protection and Electronic Documents Act 2000�� 393 s 3�� 401 Privacy Act 1978 (Sas)�� 466 Privacy Act 1990 (New)�� 466 Privacy Act 1996 (BC)�� 466 Privacy Act 2008 (Man)�� 466 Germany BGB § 320.1�� 327, 328 § 320.2�� 328 § 323�� 327 § 641�� 328 § 824�� 50 § 825�� 50 § 831�� 50 § 832�� 50 § 833�� 50 § 836�� 50 § 839�� 50 § 839a�� 50 § 985�� 57 HGB, § 568�� 328

xxxviii

Table of Legislation

European Union Charter of the Fundamental Rights of the European Union, OJ 2012/C 326/02��213, 214, 215, 221 art 8�� 216 art 15�� 217 art 16�� 217 art 38�� 218 art 47�� 215 art 51(1)�� 214 Council Regulation (EC) No 1206/2001�� 118 Council Regulation (EC) No 2201/2003�� 118 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995, art 7�� 383 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 recital 18�� 385 art 2 (e)�� 385 art 2 (k)�� 385 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011, art 8�� 383 Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts [2014] OJ L158/196�� 238 Regulation No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities [2014] OJ L 158/77�� 238 Treaty of European Union (consolidated version) OJ 2012/C 326/01 art 6�� 214 Estonia Law of Obligations�� 128 International European Convention on Human Rights��33, 213, 232, 465 art 8�� 30 art 9�� 429 International Covenant on Civil and Political Rights, art 17�� 464 United Nations Convention on the International Sale of Goods 1980�� 92 Universal Declaration of Human Rights, art 12�� 464 Ireland Defamation Act 2009, ss 22–24�� 493 Marshall Islands Marshall Islands Revised Code, Title 50, Chapter 1 (Trusts Act 1994) s 101A�� 155 s 114(1)�� 155, 156 s 114(2)�� 155

Table of Legislation

xxxix

s 114(4)�� 155 s 114(5)�� 156 s 126 (1), (2), (3)�� 155, 160 Netherlands Dutch Civil Code, 2.1, 3.11, 3.12, 6.2�� 298 New Zealand Accident Compensation Act 2001, Contractual Remedies Act 1979, ss 7–9�� 330 Defamation Act 1992 s 24�� 483 s 25�� 482 New Zealand Bill of Rights Act 1990, ss 3 and 6�� 214 United Kingdom Adults with Incapacity (Scotland) Act 2000�� 117 Bills of Exchange Act 1882�� 114, 127 Bill of Rights 1689, art 9�� 53 Civil Aviation Act 1982, s 76(2)�� 51 Common Law Procedure Act 1852�� 331 Compensation Act 2006�� 47, 510 s 1�� 48 s 2�� 488, 489 Criminal Justice and Courts Act 2015, s 57�� 517 Data Protection Act 1988, schs 2 and 3�� 381 Defamation Act 1996 s 2(1)�� 493 s 2(4)�� 493 s 2(4)(d)�� 493 s 2(5)�� 493 s 3(2)�� 494 s 4(2)–(3)�� 494 s 4(5)�� 494 s 6�� 53 s 8�� 482, 483 s 15�� 53 Defamation Act 2013 s 1(1)�� 53 s 3�� 53 s 4(1), (6)�� 476 s (6)�� 53 s 12�� 483 Enterprise and Regulatory Reform Act 2013, s 69�� 65 Environmental Protection Act 1990, s 73(6)�� 51 Equality Act 2010 s 10�� 429 s 33�� 225 Fatal Accidents Act 1846�� 132

xl

Table of Legislation

Financial Services (Banking Reform) Act 2013, s 139�� 517 Gas Act 1965, s 14�� 51 Housing Grants, Construction and Regeneration Act 1996 s 104(2)�� 329 s 105(1)(f)�� 329 s 112�� 329 Human Rights Act 1998��21, 30, 33, 142, 214, 218, 219, 407, 465, 475 s 3�� 214 s 6�� 214 ss 8��10, 30, 401, 465 s 12(4)(a)�� 477 Law Commissions Act 1965, s 3(1)�� 127 Law Reform (Frustrated Contracts) Act 1943�� 99 Law Reform Contributory Negligence Act 1945, s 1�� 118 Legal Aid, Sentencing and Punishment of Offenders Act 2012 ss 44 and 46�� 517 s 56�� 515 Legal Services Act 2007�� 518 Merchant Shipping Act 1995, s 152�� 51 Misrepresentation Act 1967, s 2(1)�� 430 Nuclear Installations Act 1965 ss 7–10�� 51 s 12�� 51 Parliamentary Papers Act 1840, s 1�� 53 Protection from Harassment Act 1997�� 49 Torts (Interference with Goods) Act 1977 s 3�� 56 s11(1)�� 59 Sale of Goods Act 1893, s 11�� 333 Sale of Goods Act 1979�� 117 s 11(2)�� 336 s 11(4)�� 342 s 11(6)�� 336 s 14(6)�� 336 s 28�� 335 s 35(1)(a)�� 342 Social Action, Responsibility and Heroism Act 2015�� 16, 47 Unfair Contract Terms Act 1977��44, 273, 275, 276 Water Industry Act 1991, s 209�� 51 Subordinate Legislation Civil Procedure (Amendment No 4) Rules 2015, SI 2015/1569�� 239 Civil Procedure Rules 1998�� 515 Part 45�� 516 Part 54�� 56 r 3.9�� 516 rr 3.12–3.21�� 516 rr 32.3 (3) and 35.4�� 516 r 44.13�� 517 r 44.3�� 516

Table of Legislation

xli

Consumer Protections from Unfair Trading Regulations 2008�� 384 Credit Rating Agencies Regulation (CRA3), 462/2013�� 276 Credit Rating Agencies (Civil Liability) Regulations 2013/1637, ss 3–16�� 278 Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/349�� 230 Working Time Regulations 1998, SI 1998/1833�� 215 United States of America Americans with Disabilities Act, 42 USC § 12112(b)(5)A�� 85 California Civil Code�� 127 Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 USC, �� 192 Federal Judiciary Act of 1789�� 192 Louisiana Civil Code�� 123 art 1�� 125 art 4�� 125 Securities Investor Protection Act, 15 USC §§ 77a–78lll�� 84 Sherman Act, 15 USC §§ 1–38�� 84 Truth in Lending Act, 15 USC §§ 1601–1693(r)�� 84

xlii

TABLE OF CONTRIBUTORS

TT Arvind is Professor of Law at Newcastle University, the United Kingdom. Kit Barker is Professor of Law at the TC Beirne School of Law, The University of Queensland, Australia. Francesca Bartlett is Senior Lecturer in Law at the TC Beirne School of Law, The University of Queensland, Australia. Jeffrey Berryman is Professor of Law at the University of Windsor, Canada. Wendy Bonython is Assistant Professor of Law at the University of Canberra, Australia. Kylie Burns is a Senior Lecturer at Griffith Law School, Griffith University, Australia and RECOVER Injury Research Centre. Andrew Burrows is Professor of the Law of England and a Fellow of All Souls College at the University of Oxford. Robyn Carroll is Professor of Law at the University of Western Australia. Hugh Collins is the Vinerian Professor of English Law and a Fellow of All Souls College at the University of Oxford. Erika Chamberlain is Associate Professor and Associate Dean (Academic) at the Faculty of Law, the University of Western Ontario, Canada. Hanoch Dagan is the Stewart and Judy Colton Professor of Legal Theory and Innovation and former Dean of Tel Aviv University Faculty of Law, Israel. Joachim Dietrich is Professor of Law at Bond University, Australia. The Hon Justice James Edelman is a judge of the Federal Court of Australia, Adjunct Professor at the University of Queensland and Conjoint Professor at the University of New South Wales Joshua Getzler is Professor of Law and Legal History and a Fellow of St Hugh’s College, at the University of Oxford, and Conjoint Professor of Law at the University of New South Wales, Australia. Carlo Vittorio Giabardo is a PhD candidate in the Department of Law at the University of Turin, Italy and a former visiting scholar at the Department of Law, the University of Durham, the United Kingdom. Genevieve Grant is Senior Lecturer in Law at the Faculty of Law, Monash University, Australia.

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Table of Contributors

Joanna Gray is Professor of Financial Law and Regulation at Birmingham University, the United Kingdom. Rosamund Harrington is a Senior Research Fellow at RECOVER Injury Research Centre and Lecturer in Occupational Therapy at Australian Catholic University. Martin Hogg is Professor of the Law of Obligations at the University of Edinburgh, the United Kingdom. Darryn Jensen is Senior Lecturer in Law at the Australian National University College of Law, Australia. Elizabeth Kendall is Professor at the Griffith Health Institute in the School of Human Services and Social Work at Griffith University, Australia. Tsachi Keren-Paz is Professor of Private Law at Keele University, the United Kingdom. Annick Maujean is a Senior research fellow at RECOVER Injury Research Centre and Menzies Health Institute in the School of Allied Health Sciences at Griffith University, Australia. Eliza Mik is Lecturer in Law at Singapore Management University, Singapore. Annette Morris is Reader in Law at Cardiff University, the United Kingdom. Ken Oliphant is Professor of Tort Law at the University of Bristol Law School, the United Kingdom. David Rolph is Professor of Law at the Faculty of Law, the University of Sydney, Australia. Zoë Sinel is Assistant Professor of Law at the Faculty of Law, the University of Western Ontario, Canada. Anne Schuurman is Assistant Professor of English and Medieval Studies at the Faculty of Arts and Humanities, the University of Western Ontario, Canada. Henry Smith is the Fessenden Professor of Law at Harvard Law School, Cambridge, Massachusetts, the United States of America. Warren Swain is Professor of Law at the Faculty of Law, the University of Auckland, New Zealand and Professor of Law at the TC Beirne School of Law, the University of Queensland, Australia. Andrew Tettenborn is Professor of Law at Swansea University, the United Kingdom. Prue Vines is Professor of Law at UNSW, Australia. Alexandra Whelan is a Teaching Fellow at University College London and MPhil candidate in Law at the University of Oxford.

Part I

Agendas and Predictions

2

1 Private Law as a Complex System: Agendas for the Twenty-First Century KIT BARKER

I. Introduction: The State of Instability Some challenges are so great that they cannot be faced alone. The form and content of our system of civil justice appears to be one such challenge. Those operating in this space—be they judges, academics, practitioners, legislators or policy-makers—are increasingly and uncomfortably aware that the subsoil beneath them is shifting and that the traditional ground upon which they have walked in the past is prone to overcrowding, movement and subsidence. The sources of complication and destabilisation are legion and, although not all of them are new, their intensification, combination and coincidence in the first two decades of the twenty-first century has produced a degree of sympathetic oscillation that is now increasingly threatening to the foundations of private law.

A. Crowding, Normative Overload and Co-ordination Problems If these opening statements appear hyperbolic (even apocalyptic?), it is worth reflecting briefly on the extent of the unsettling forces that are at work. The rise of the positive state throughout the twentieth century has yielded an unprecedented increase in the level of statutory intervention and regulation both within and around traditional private law institutions, doctrines and remedies. This has crowded the field and increased the overlap between common law and statutory norms, with attendant risks of redundancy, duplication, or contradiction between them. It has also increased the opacity and complication of the system as a whole for its users. More judgments are available than ever before, almost instantly, and single, agreed, opinions at appellate level seem harder to find. The ensuing normative cacophony is now so loud that it is sometimes hard for audiences to make out any single, coherent, message. These problems can be regarded as internal co-ordination and communication problems, which are to be added to the already extensive list of contemporary complications and difficulties attending individual private law doctrines and rules that have become standard fare for law journal articles and critical commentaries. They require thinking across and between, as well as ‘about’ the many compartments of private law; and they demand strategies for increasing the coherence, rationality, accessibility and manageability of the material

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Kit Barker

that private law contains. Various approaches have been suggested for making a better meal of the dog’s breakfast, many of which involve stripping away old rules and categories, and codifying or restating them.1 The proposals for principled codification are not confined to jurisdictions with mixed civilian and common law heritage, nor are recent proposals for the restatement of common law rules confined to multi-jurisdictional systems like the United States,2 which suggests that the difficulties of overload, contradiction and confusion are not particular to federalism, or indeed to any one type of jurisdictional environment. Some of the recent codification plans in Europe3 form part of a political agenda of internationalisation, but not all such plans share that teleological aim. The contemporary aspiration to rationalise is hence not necessarily indicative of any desire to participate in a broader economic or social community beyond one’s own borders, or to prepare oneself for harmonisation. Sometimes it is born of considerations of sheer practical economy, the desire to ensure parity in the treatment of similar cases, or the basic psychological need for human beings to bring to the world a sense of order—to make better sense of things. Different interest groups have different reasons to rationalise—academics may have pedagogy and higher-order philosophical considerations in mind, whereas practitioners are more concerned with the day-to-day workings of the system; and this may, in turn, mean that the forms of the rationalisation each group seeks will also be different. Public statements of the law that are designed to make it more coherent hence take many different forms, from treatise, to textbook, to codes, restatements and draft frames of reference.4 The desire to create stability and to eradicate antinomy in the legal order is nonetheless important for the rule of law, and universally shared by contributors to this book. Unless private law can justify its status as a rational order, its legitimacy and moral authority are diminished. As well as being as being troubled by its own, internal organisational problems, private law is also now increasingly heavily implicated by systems that are, formally speaking, external to it. It faces direct prompts and challenges from public constitutional norms and human rights provisions,5 and it coexists alongside increasingly far-reaching, bureaucratic systems of regulation, reparation and welfare provision. It is also undergirded in terms of its practical operation by private insurance systems which not only spread liabilities so as to make them affordable, but which increasingly operate alongside other market mechanisms to fund individuals’ access to justice, as state support is withdrawn. Insurers now play a key, practical role as subrogated litigants in a high proportion of claims, controlling the

1

See Pt III. See Ch 2 and A Burrows, A Restatement of the English Law of Unjust Enrichment (Oxford, Oxford University Press, 2012); A Restatement of the English Law of Contract (Oxford, Oxford University Press, 2016). 3 See, eg, Acquis Group (ed C Bar), Principles, Definitions and Model Rules of European Private Law Draft Common Frame of Reference (Oxford, Oxford University Press, 2010). 4 For a comparative analysis of the different features of these various different forms of work, see K Barker, ‘Centripetal Force: The Law of Unjust Enrichment Restated in England and Wales’ (2013) 34 OJLS 155, 171–78. 5 See D Friedmann and D Barak-Erez (eds), Human Rights in Private Law (Oxford, Oxford University Press, 2001); K Ziegler (ed), Human Rights and Private Law (Oxford, Hart Publishing, 2007); D Hoffman (ed), The Impact of the UK Human Rights Act on Private Law (Cambridge, Cambridge University Press, 2011); K Ziegler, Human Rights and Private Law (Oxford, Hart Publishing, 2007); V Trstenjak and P Weingerl (eds), The Influence of Human Rights and Basic Rights in Private Law (Dordrecht, London, Springer International Publishing, 2016). 2

Private Law as a Complex System

5

practical operation and settlement of the claims process; and claims processes are now initiated and funded in some cases by third party ‘litigation funders’ whose only real interest in proceedings is profit. The law’s relationship with these other, public and private systems is still clumsy and the norms governing the linkage of one system to another are not fully worked out.6 It has been customary in the past to think of each system as autonomous and discrete; and to assume that the demands of private law and corrective justice are unique, morally prior to, and rightly unaffected by the various systems that supplement, underwrite, or abut it. But patterns of thinking have changed as private law has come to be seen in the post-realist era as not simply a neutral, restorative adjudication technique, or a facilitative mechanism for enabling individuals to achieve their own ends, but also as a tool by means of which the state can give effect to social and/or economic purposes. The autonomy (independence) of the private law system is questioned by those who wish to see the law make sense not simply in its own right and for its own sake, but also as a part of a coordinated social system serving broader goals. The result in the United States, it has often been pointed out, has been a suction and absorption of private law into public law, although attempts are now being made to reinvigorate and publicise its important, internal moral messages and to resist the raw utilitarianism of approaches that construe the ends of the private law in purely wealthmaximising terms.7 Some modern realists, as we shall see in this volume, now seek to preserve private law’s formal independence from public law and to respect its basic structures, whilst still making its substance more responsive to public ends.8 These calls for greater sensitivity on the part of private law to its systemic environment and public alternatives are tending to be pressed ever harder as the sources of private law are further democratised and politicised, although they remain more controversial in jurisdictions which have stronger, deontological traditions and firmer commitments to the common law method. Just as there is a perceived need for greater co-ordination and coherence within private law, so too, therefore, is there now a growing need, at the level of overall governance, for proper co-ordination between systems of private law, administrative law, state welfare provision, regulation and economic markets. How this co-ordination is to be accomplished effectively is a major management problem and remains one of the greatest challenges of the current age, not least because there is no single point at which information about

6 For a recent examination of some key intersections of a doctrinal, procedural and philosophical nature between public and private law, see K Barker and D Jensen (eds) Private Law: Key Encounters with Public Law (Cambridge, Cambridge University Press, 2013). For a fascinating vision of the relationship between private law and insurance that challenges the classic, ‘external’ paradigm, see R Merkin and J Steele, Insurance and the Law of Obligations (Oxford, Oxford University Press, 2013). 7 See, by way of symbolic example of the new life, ‘The New Private Law’ (2012) 125 Harvard Law Review. The resistance is of greater longevity: see, eg, G Fletcher, ‘Fairness and Utility in Tort Theory’ (1972) 85 Harvard Law Review 537; R Epstein, ‘A Theory of Strict Liability’ (1973) 2 Journal of Legal Studies 151; J Coleman, Risks and Wrongs (Cambridge, Cambridge University Press, 1992) and, more recently (identifying an account that is distinct from corrective justice theory, but nonetheless also opposed to the economic one) B Zipursky, ‘Civil Recourse, Not Corrective Justice’ (2003) 91 Georgia Law Journal 695 (cf S Hershowitz, Corrective Justice for Civil Recourse Theorists (2011) 39 Florida State Law Review 107, taking the view that civil recourse theorists are actually corrective justice theorists, albeit ones of the best sort). In Canada, a key figure in the resistance, and in the revival of non-instrumentalist thinking, is Professor Ernest Weinrib: E Weinrib, The Idea of Private Law (Cambridge MA, Harvard University Press, 1995); Corrective Justice (Oxford, Oxford University Press, 2012). 8 See Dagan, Ch 4.

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Kit Barker

each system is currently brought together so as to facilitate construction of a ‘best’ global vision. The absence of any single node of decision determining the operation of the various systems as a whole is a feature of what Professor Ruhl has referred to as inherent system complexity9—an idea which I explore further below. If it is true that private law is a complex, polycentic, adaptive system in the sense articulated by Ruhl (a plausible contention, in my view), this is likely to place limitations on the extent to which its various designers can hope always to produce the results they intend, and it may limit our ability to make accurate predictions regarding the law’s future direction and effects, even assuming that we know all the variables. It also means, I suggest, that normative messages should (and perhaps inevitably will) flow in more than one direction—not simply from public law and politics into private law, or from statute into the common law, but also from private law into public law, and from the common law into the interpretation of statutes and the design of some administrative reparation schemes.10 I personally regard this as a welcome development, if carefully handled, and suggest that the hurdles and conventions that currently slow the flow of ideas from private law into public law be relaxed. There must be space for a shift from the moral (as particularly instantiated in private law) into the political, as well as from the political into the moral.

B. Moral Challenges Each of the problems identified above might be regarded as, in one sense or another, technical or managerial. They flow from the over-abundance of legal information and the variety of different sources of private law in the twenty-first century, the difficulty of communicating the law’s complicated content clearly and in an accessible form; or the need to rationalise and co-ordinate it both internally and externally, so as to achieve its purposes most effectively. But there are also, of course, profound moral challenges presented by this age.

9 J Ruhl, ‘Complexity Theory as a Paradigm for the Dynamical Law-and-Society System: A Wake-Up Call for Legal Reductionism and the Modern Administrative State’ (1996) 45 Duke Law Journal 849; ‘Law’s Complexity: A Primer’ (2008) 24 Georgia State Law Review 885; J Ruhl and D Katz, ‘Measuring, Monitoring and Managing Legal Complexity’ (2015) 101 Iowa Law Review 192. Other studies of complexity in law (where the central conception is slightly different) include: P Schuck, ‘Legal Complexity: Some Causes, Consequences and Cures’ (1992) 42 Duke Law Journal 1; L Kaplow, ‘A Model of the Optimal Complexity of Legal Rules’ (1995) 11 Journal of Law, Economics, & Organization 150 (an economic model); R Epstein, Simple Rules for a Complex World (Cambridge, Mass, Harvard University Press, 1997); T Webb, ‘Tracing an Outline of Legal Complexity’ (2014) 4 Ratio Juris 477 (distinguishing systems theory from autopoetic analyses). 10 On the modern dynamics of the common law and statute, see, recently, P Cane, ‘Taking Disagreement Seriously: Courts, Legislatures and the Reform of Tort Law’ (2005) 25 OJLS 393; J Goudkamp and J Murphy, ‘Tort Statutes and Tort Theories’ (2015) 131 LQR 133; TT Arvind and J Steele (eds), Tort Law and the Legislature (Oxford, Hart Publishing, 2012); A Burrows, The Relationship Between Common Law and Statute in the Law of Obligations’ (2012) 128 LQR 232; J Lee, Legislation and Reform in the Law of Obligations (Oxford, Hart Publishing, 2013); A Hudson, ‘The Synthesis of Public and Private in Finance Law’ in Barker and Jensen (n 6) ch 8; E Bant and J Paterson, ‘Limitations on Defendant Liability for Misleading or Deceptive Conduct Under Statute: Some Insights from Negligent Misstatement’ in K Barker, R Grantham, S Swain (eds), The Law of Misstatements: 50 years on from Hedley Byrne v Heller (Oxford, Hart Publishing, 2015) ch 7; D Wright, Common Law in the Age of Statutes: The Equity of the Statute (Sydney, LexisNexis Butterworths, 2015). For the suggestion that private law should further inform the construction of administrative reparations schemes for historical injustice, see S Degeling and K Barker, ‘Grave Historic Injustice: The Role of the Common Law’ (2016) 41 Monash University Law Review 377.

Private Law as a Complex System

7

A more statutory private law is likely to mean a more instrumentalist one—one in which private rights, duties and processes are tapered to fit particular policy ends. Although this may well be desirable on occasion and sometimes will helpfully promote the autonomy of private parties in respect of their contracting practices and other aspects of their lives, it also carries risks, as we shall see in Part II below. It not only prioritises the good over the right, but makes private law rights vulnerable to some serious deficiencies in the democratic process, especially to what Professor Stevens has called the risk of special interest capture.11 The democratisation of private law through statutory adaptation can sometimes make it susceptible to short-term political side winds and powerful lobbying interests (usually commercial or media interests) that have the ear of government. This can lead to the significant curtailment of private rights. It may also indirectly give rise to a change in the general style of judicial reasoning and, as Professor Burrows notes with some concern, lead judges to disclaim responsibility for making decisions that need to be made, on the basis that it is better to leave matters to the initiative of elected parliaments. The more that statute becomes the presumed source of private law, the more these assumptions and deferments are likely to grow in regularity. Amongst what I have referred to as the moral challenges of the age are how to respond to calls for the protection of new and intangible forms of legal interest, such as pure economic interests, privacy rights, rights to psychological and emotional welfare, and the ‘right’ for private individuals to make meaningful ‘choices’ in respect of particular aspects of their lives. The new social order in which individuals are more intent on personal and asset mobility and in which ordinary people are (often perhaps, unwittingly) increasingly invested in complex, abstract, balance-sheet products (pension plans, options, futures, carbon emissions ‘allowances’ and investment portfolios stuffed with abstract wares) accords greater centrality to intangible forms of wealth—to assets which, when deconstructed, consist in nothing other than Hohfeldian rights, powers, duties and liabilities. These days, duties in the form of debts are ironically one of the developed world’s most significant forms of asset—a fact which is both shocking and starkly revelatory of the way in which we have come to depend upon credit to fuel the tanks of the modern economy. This world is a far cry from that in which extant, corporeal property represented the bulk of a normal person’s patrimony. Legal rights and liabilities are now the main form of currency, to be traded, won and lost, often at the touch of a button. The modern order is also one in which the combination of exponentially growing populations and increasingly sophisticated, invasive technologies creates demands for abstract rights not just to social inclusion and respect from one’s peers (the traditional preserve of the law of defamation) but also social exclusion—the right to be ‘let alone’ or ‘forgotten’ by one’s fellow man. The gradual introduction of such rights in most jurisdictions in recent years is a reaction to a more intrusive age and to new technologies. Such rights are much

11 See Stevens, ‘Private Law and Statute,’ paper delivered at ‘Private Law in the Twenty-First Century’ conference, Brisbane, Dec 14–15, on file with the author. This suggests that part of the process of democratising tort law must involve dealing with the current defects in democracy, such as distortive mechanisms of political funding and lobbying that unduly favour powerful vested interests.

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Kit Barker

needed, but still underdeveloped.12 They remain problematic not just because they protect abstract interests, but because the claims for their protection are themselves, in part, premised on the value of other, abstract human interests such as personal autonomy and human dignity; and because they bump up against abstract liberties and public interests, such as freedom of speech and national security. At the same time as private law is being asked to recognise and accommodate new forms of interest, it is also being challenged to ‘vindicate’ more effectively the rights that it already provides, through a broader and more powerful range of remedies. We see recent developments within the remedial sphere that reflect these pressures—the gradual expansion in common law jurisdictions of specific performance remedies and ‘cost of cure’ damages in contract law;13 the award of ‘user fee’ or ‘hypothetical bargain’ damages to individuals whose property has been used without causing them any apparent harm in the traditional sense;14 the stripping of profits from wrongdoers whose behaviour has caused no provable detriment; the award of damages to those who have been deprived of choices without suffering physical consequence;15 and the issue of orders of apology and correction in respect of a number of wrongs, including, potentially, defamatory statements and invasions of privacy.16 The mooting of new ‘vindicatory’ measures of damages within private as well as public law provides a recent and controversial example.17 All of these developments within private law’s remedial framework are responses to moral challenges. They reflect, I suggest, an environment in which ‘rights’ are regarded as symbolically as well as substantively important—one in which individuals disaggregate themselves from the market and the mass and claim entitlements to dignity, autonomy and personal ‘respect’ for their own values and world views, both from other individuals and from the justice system itself. Part of the new respect that individuals expect is that the law does the most that can be done to set them in a position which is subjectively equivalent (that is, equivalent from their own point of view, not simply that of the market) to the one they would have occupied, had their rights never been infringed. This requires more sophisticated measures of justice and, sometimes, new remedial tools. The extent to which private law can and will shift to accommodate these calls for greater subjectivity and the modern sense of entitlement to difference and choice is an intricate matter. If respecting people’s subjective feelings means granting them damages when others

12 Despite unanimous calls from numerous independent law reform bodies, Australian governments are still to act on proposals to introduce a statutory action for invasions of privacy. There was a minor flaring of interest after the phone-tapping scandals in the UK implicating media owned by Rupert Murdoch, but the flame soon dwindled again as elections approached. 13 S Smith, ‘Substitutionary Damages’ in C Rickett (ed) Justifying Private Law Remedies (Oxford, Hart Publishing, 2008) ch 5. For the suggestion that specific performance is now available for the purely ‘educative’ purpose of vindicating rights, see Electrolux Home Products Pty Ltd v Delap Impex KFT [2015] FCA 62 [80]. 14 See, eg, Penarth Dock Engineering v Pounds [1963] 1 Lloyd’s Rep 359; Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342. 15 Chester v Afshar [2004] UKHL 41, [2005] 1 AC 134 (failure to inform of a risk that P would have chosen to take at a later juncture anyway); Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52; [2004] 1 AC 309 (negligently performed sterilisation leading to the birth of a healthy child—conventional damages awarded). 16 See generally R Carroll, ‘Beyond Compensation: Apology as a Private Law Remedy‘ in J Berryman and R Bigwood (eds), The Law of Remedies: New Directions in the Common Law (Irwin Law, 2010) 342; ‘Apologies as a Legal Remedy (2013) 35 Sydney Law Review 317; Vines, Ch 14. 17 See Edelman, Ch 17.

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upset them,18 or when they are served food that offends their religious or ethical views,19 there are likely to be costs in terms of the liberties and autonomy of all. Life is never harmfree, but may be especially harm-laden if we define harm in terms of diminutions in our personal, subjective preferences. Extending the concept of actionable injury to encompass civil action in such instances hence requires careful thinking about the implications of legal duties and rights for the autonomy of both parties involved in a dispute. The question is how properly to balance the respective autonomy interests when determining which forms of harm are ‘actionable’ and which are not. The law must find a way of expressing respect for persons as human agents exercising real dignity and choice, without allowing itself to affirm the view that life is ‘all about me’ and never about anyone else. Another key challenge of the age, that I characterise here as a moral one, but which might also be cast in instrumental terms wherever private law claims a role in deterring wrongful behaviour, is how best to promote access to justice for those who need it. This challenge is ancient, but especially acute in the current era. The welfarist ideologies of the mid-to-late twentieth century have given way in the wake of recent economic downturns to neo-liberal ideologies that commodify individual claims and farm them out to the market for funding, mediation and settlement.20 The de-formalisation of justice through mechanisms of alternate dispute resolution, whilst undoubtedly increasing access to some justice of some sort for many who would otherwise be unable to afford it, inevitably changes not just the amount, but also the nature of the justice that is given and removes results from the formal record, stripping them of precedential value or symbolic, vindicatory effect. Much has been said of the pros and cons of this and it is not clear as yet whether the startling disappearance of the civil trial that we have witnessed in many jurisdictions is to be welcomed, or rued.21 Is this a sign of success, or of failure? Is civil justice itself a public-private ‘partnership’— the next (perhaps the last?) in the sequence of devolutions of state responsibilities to the market? Is civil justice in the institutional sense itself so publicly undervalued that there are no votes in an agenda for reinvestment in its processes? And how do the recent measures that have been taken in many jurisdictions to reduce costs impact on the ethical obligations of lawyers to their clients? Are lawyers’ public duties to courts to speed things up and keep expenses down now to take priority over their ethical responsibilities to clients to leave no stone unturned in the prosecution, or defence of a case?22 Is a system of justice that allows mass litigation to be funded and effectively run by third party litigation-funders really a system in which the market is helping to fund justice, or one in which justice is now itself a commodity helping to fund the market?

18

See Schuurmann and Sinel, Ch 21. See Keren-Paz, Ch 20. Morris, Ch 21. On the impact upon court processes of third party litigation funding in modern class action proceedings, see P McMurdo, ‘ Class Actions: Uses and Abuses of the Process of Courts’ in K Barker, S Degeling, K Fairweather and R Grantham (eds), Private Law and Power (Oxford, Hart Publishing, 2016) ch 12. 21 See Giabardo, Ch 26. 22 See Bartlett, Ch 25. 19

20 See

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As we shall see in several contributions to this book, the neo-liberal instinct to create more efficiencies through decentralised market processes may well have shot itself in the foot in some instances. The creation of claim markets has tended to promote the view that every accident is a financial opportunity. What else, one might ask, is more likely to create an aggressive, ‘compensation culture’ that will challenge our ethics and increase burdens on the market? Is state reinvestment in access to justice likely ever to be on the cards, once market processes have been allowed in? Is civil justice just not worth further public investment? And how does one put any of these issues on the legislative agenda? How does one make the need for a rational, coherent, well-funded system of civil justice a sufficiently interesting or urgent priority in the popular imagination to light a fire under the seat of government? The truth is, I suspect, that investment in private justice will never be a vote-winner in the same way that investment in public health, education or policing is. This might reflect a genuine order of priority, but it could equally be a symptom of the disengagement of the populace from its civil laws, and of a lack of appreciation of their true value.

II. Overview Reflecting upon the opening sentence of this chapter, it is apparent that these challenges are so extensive that they can only be solved through the co-ordinated efforts of our entire community. This does not just mean the academic community and the profession, but law reformers and governments. It was to that end that we organised the conference around which the contributions presented in this book were delivered. The aim has been to identify and describe an agenda for private law in the coming years that may serve as a catalyst for concentrated future effort. This brings together much independent, valuable work that has lately been done in a variety of discrete fields and it engages legal theorists and empiricists as much as it does judges, practitioners, ethicists and policy-makers. Given the number of challenges and the impossibility of addressing them all, we decided to pursue a mixed strategy of asking for thoughts about future direction that were both general and specific. Part I of the book, ‘Agendas and Predictions’, sets out a number of general challenges and predictions regarding private law, related to education, research, intelligibility, reform and engagement. Part II (‘Legislation, Codification and the Role of the Common Law’) examines the respective roles of statutes, codes and the judge-made law in future years. Part III (‘Complex Systems and Interactions’) considers the difficult question of how best to co-ordinate and organise private law both internally and externally in its relationships with other systems (human rights, regulation, insurance markets and social security systems). Part IV (‘New Remedies, Technologies and Intangible Interests’) examines the law’s recent encounters with new technological forms, new species of private law remedy that are designed to promote plaintiff interests, and new or controversial types of intangible, legal interest (privacy, personal autonomy and emotional welfare). Part V (‘Process Challenges and the Privatisation of Justice’) concludes with an assessment of some of the law’s challenges in the sphere of process and access to justice, including the challenges presented by claims markets, the streamlining and disciplining of civil claims processes, and the challenges created by the privatisation of justice through alternative dispute resolution.

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III. General Challenges Several general agenda matters are raised by contributors, which relate to the teaching and research of private law; the best means of communicating the law’s standards; problems of intelligibility and internal coherence; and the general, but crucial question of its future normative commitments.

A. Teaching and Research In the law schools in which I have been employed, it has always proven more difficult to recruit and retain teachers and research students in the field of private law than public law. Modern grant funding mechanisms also seem more attuned to public law, or interdisciplinary work, than they are to what might be regarded as the nuts and bolts of doctrinal scholarship, although there are always notable exceptions and successes. The irony of this, Professor Burrows points out in Chapter 2, is that such scholarship is often undervalued in the modern research environment, when it is actually the type that is both cheapest and most likely to be immediately useful to judges and practitioners operating at the sharp end of the civil process. His proposed solution is to make more effective use of the links between the academy and legal practice to reinvigorate and enhance the respect for ‘practical legal scholarship’ that appears to have been so undermined in the United States by legal realism. There seems to be much in this suggestion from a tactical point of view, for universities are still obliged to respect the demands of the profession when it comes to basic aspects of the qualifying law degree,23 and might perhaps enlist the power of this structural factor as a lever towards the progression of a mutual agenda. A closer alliance of professional and academic forces can also help academic private law to step up its visible public engagement. It would be wrong to suggest, I think, that all is doom and gloom. The recent founding of specialised private law centres in many jurisdictions,24 the success of the Third Restatement of Unjust Enrichment and Restitution in the United States,25 the founding of new, dedicated journals on restitution26 and equity,27 and the fight-back of corrective justice and civil

23 This alliance may, of course, result in the protection of only such aspects of the academic enterprise as are also of interest to the profession. This can produce its own tensions. 24 Three recent examples are the Private Law Centre at the University of Edinburgh (2009), the Australian Centre of Private Law at the University of Queensland (2013) and the Cambridge Private Law Centre (2014). Note also the Melbourne University Obligations Group (annual reports of which go back to 2010, but which has been operating successfully for significantly longer than this), the Private Law Research and Policy Group at UNSW Australia (founded in 2004) and the recent Harvard Project on the Foundations of Private Law, led by Professor Henry Smith. In Canada, the Paul-André Crépeau Centre for Private and Comparative Law (formerly the Quebec Research Centre of Private and Comparative Law) has operated at McGill University since 1975. There are no doubt other examples. 25 Restatement of the Law Third Restitution and Unjust Enrichment (ALI, 2011), on which see C Mitchell and W Swadling (eds), The Restatement Third: Restitution and Unjust Enrichment (Oxford, Hart Publishing, 2013). 26 The Restitution Law Review (ed F Rose) (since 1993). 27 The Journal of Equity (ed S Degeling) (since 2006).

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recourse theory in North America,28 are all indicators that the fire is far from out. However, if the type of research that is likely to be most highly valued by the profession—the type of both broad and detailed, rationalising work that the great treatise writers of the nineteenth century were engaged in—is to take place, the politics and funding of private law scholarship need to change. Pressures to publish are now so intense, and employers often so impatient to see results in their bid to hike their law school’s latest ‘ranking’, that the prospects of a single scholar being able to justify the time necessary to produce a work of those historic proportions are virtually nil. Law deans need to be aware of this and need to communicate the message effectively to university agencies and funding bodies. The way forward for big projects may be through more collaboration between individuals and institutions along science and social science models, the development of specialised centres for the research of private law, the creation of equivalents to the American Law Institute in other jurisdictions, and the creation of more scholarships for doctoral research in the field. Only in this way will the body of expertise remain sufficiently strong, and maintain the critical mass required to pursue the substantive projects that need to be undertaken in the years to come.

B. Normative Commitments One way of making private law appeal more may, ironically, lie in connecting it more openly to its deeper normative commitments. Although this move might appear to be in tension with Burrows’ views about the importance of practical doctrinal scholarship, it is clear that he accepts the value of a wide variety of different forms of legal research. My own view is that the perceived tension between doctrine and theory has always been somewhat exaggerated. Theory may not necessarily be that which a practitioner argues in court, but the law’s most fundamental aims and values inevitably shape its contours, just as its bipartite form constrains its moral and practical possibilities. One of Dagan’s aims in Chapter 4 of this book is to make private law more committed to society’s public values, whilst respecting and affirming its identity as a valuable institution that is distinct from public law. His vision of private law as a tool through which society can deliver to individuals a higher degree of autonomy and authorship of their own lives chimes with the modern, perfectionist liberal agenda of writers such as Joseph Raz.29 On this view, the law must respect diversity and difference, as well as self-determination and these prerogatives must be embodied by private law in horizontal legal relationships between private parties, not just in vertical legal relationships between the state and its citizens (ie, in public law). The future research agenda of private law must, Dagan suggests, include investigating new, pluralistic structures (for example, new types of contract and new non-standard forms of property) that enhance individual choice; achieving a better co-ordination of the aims and mechanisms of public and private law; and (perhaps the profoundest philosophical challenge?) achieving a proper reconciliation of the tensions between relational justice and constitutive social goods. These tensions are often evident when our private arrangements violate broader social prerogatives, such as norms regarding equality, freedom of expression or economic competition.

28 29

See n 7. J Raz, The Morality of Freedom (Oxford, Clarendon Press, 1986).

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C. Incoherence, Intelligibility and Communication Another way of increasing the appeal and respectability of private law undoubtedly would be to increase its internal coherence and intelligibility. A well-directed point that Oliphant makes in the context of his own draft agenda for tort law in Chapter 3 is that it is hard for tort doctrine to communicate its messages or engage the public when its internal rules are so shambolic. Oliphant has several proposals—to apply Occam’s Razor liberally to the tort field, culling most members of the (some 70 or more) different torts; to separate functions of rights-protection and loss-compensation, so as to make some remedies available even where no wrong (actual breach of duty) has been committed; and to fix the paradoxes of the duty of care concept in the tort of negligence, so as to make it more intelligible to the average person. This means recognising that the ‘duty to take care’ is neither a liability ‘control device’, nor a mechanism for describing immunity from liability for fault, but a real, primary duty that applies to all of us, all of the time. Limitations on the extent of our liability for negligence should be accommodated by asking whether or not an injury suffered lies within the ‘protective scope’ of the duty of care we owe, not by making the existence of our primary duty magically flicker in and out of existence according to the type of consequence (economic, physical, psychiatric) a plaintiff happens to have suffered. The law’s fictions and technical devices may serve to help to circumvent some of its own complications and achieve its short-term ends, but they do not do much to enhance its external credibility or internal coherence, and we should do all that we can to ensure that our house is in an order that is justifiable to the outside world. How to achieve greater coherence and intelligibility in private law’s internal rules is an extraordinarily difficult question, but it is impossible, in my view, to see it as disconnected from the issue regarding the law’s normative commitments. Indeed, one reason why coherence has been so difficult to achieve in the field of tort law is precisely because the range of interests it protects is so broad, and because it is affected by a variety of different aims and values that compete for priority according to context in a relationship that has been described as one of ‘complementarity’.30 The coherence of private law is also affected by the type of reasoning techniques courts choose to deploy (bright line rules and exceptions, principles, multifactorial tests, or structured discretions), by the size of the categories that it deploys when organising material (the smaller the category, the more likely it is to be internally coherent), by the persistence or abolition of historical forms of action, and by the extent to which the law is comprised of multiple, overlapping norms drawn from more than one authoritative source (judge-made law, statute, or both). The last of these matters is the subject of more detailed consideration in the next section, but a pertinent observation that can be made right away is that the mere choice of a statutory form for private law is in itself no guarantee of coherent results, or indeed more meaningful communication with the public. Much still depends on whether the statute covers the whole ground and excludes the operation of other rules (ie fully codifies), the form of reasoning technique the text deploys (higher-level abstract principles and discretions, or lower-level detailed rules),

30 I Englard, ‘The Idea of Complementarity as a Philosophical Basis for Pluralism in Tort Law’ in D Owen (ed), Philosophical Foundations of Tort Law (Oxford, Oxford University Press, 1995) 183.

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the care and clarity of its drafting and the normative presumptions upon which it is based. If it is designed to reflect a balance of potentially competing normative aims (often the case) its application to a given set of facts that raise tensions between those aims is still likely to be unclear. Although Oliphant seems to place some faith in the use of statutes or codes as a communication device, the greater accessibility of public Acts is in my view no guarantee of public empowerment or engagement, any more than the greater availability of detailed medical information on the internet is necessarily a guarantee of more informed patient choice. Statutes can either be so complex and impenetrable in form and language as to be no more informative than common law cases (which at least contain discursive explanations), or they may be so apparently simple as to be completely uninformative, or even to deceive. Stating the law in a statute or code may be symbolically important in some instances; and it stamps the law with the imprint of democracy, but if true accessibility in any meaningful sense is to be achieved, readers are always going to need advice regarding meaning and application. To that end, greater investment in publicly funded advisory projects such as the Citizens’ Advice Bureau in the United Kingdom would seem to be an important way to go, whatever form the law itself ends up taking. Some matters are too difficult to be summarised, and the law requires communicative interpreters, not just shorter statements of its rules, if it is take up a meaningful place in the lives of its subjects. Restatements that are accompanied by explanatory text are generally better in this regard than statutes or codes, which are not.31 The final abandonment of the language of ancient forms of action and their replacement by meaningful causes of action is also a must. Latin phrases and maxims, though they conjure a sort of mystical power for those who choose to incant them, do not help, appear prosaic and obfuscatory to the ordinary person, and should be stripped out of such parts of the common law and equitable doctrine as they continue to inhabit. The power of the law must remain, but its mystique only undermines its moral authority.

IV. Statutes, Codes and the Role of the Common Law With the exception of Professor Hogg’s chapter regarding the prospects of codification of private law in Scotland (Chapter 6), most contributors express a good degree of scepticism regarding statutory intervention in, and the codification of, private law. Swain (Chapter 5) views it as an unlikely prospect in the contractual field in Australia,32 and Burrows’ preference for England and Wales is a series of restatements of the common law, which he regards as having a valuable function, even within singular jurisdictions. An alternative technique mentioned (although not preferred) by Hogg is the development of ‘maxi-statutes’ in discrete fields of private law, which build up gradually over time so as to cover more and more ground. In multi-jurisdictional systems such as Australia, a further strategy that has proven

31

Barker (n 4) 173–74. an interesting comparative collection canvassing the codification debate in this field, see M Keyes and T Wilson, Codifying Contract Law: International and Consumer Perspectives (Farnham, Ashgate Publishing, 2014). 32 For

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popular in recent years and which has met with some success in the field of defamation law is the adoption of uniform legislation.33 This legislation cleared the Australian field of a ragged array of different approaches to defamation liability resulting from isolated legislative interventions in different jurisdictions (of both a statutory and codified sort), restoring the common law as the basic normative framework, but introducing a number of agreed modifications to it. Although this now leaves two sources of law in place in each jurisdiction (three, if you include the constitution as a check upon both), its effect has been to restore a degree of equality of treatment to citizens in respect of reputational rights across the country, to reduce overall systemic complexity at the national level to some degree, and to forestall inefficient and opportunistic practices of forum-shopping. Precisely the opposite effects, it must be said, occurred when the various different Australian states and territories failed to agree about the form of more far-reaching civil liability legislation in the form of the various Civil Liability Acts in the early part of the new millennium.34 These were designed to curb plaintiff rights in response to the ‘insurance crisis’ and they provide a salutary lesson about the perils of uncoordinated, highly politicised legislation introduced in a very short time frame. They illustrate perfectly the vulnerability of private law rights to the power of lobbying interests (in this instance, the insurance industry) when private law is democratised. Some of the provisions also demonstrate neatly the dangers of self-preferential legislation on the part of government, since some states seized the opportunity to introduce more stringent fault requirements, modelled along public law lines, as preconditions of their own liability for negligence and breach of statutory duty, even in respect of their most basic, operational failings in the discharge of their statutory functions.35 The current position in respect of proportionate liability legislation is even worse, the over-complication and varied form of the legislation in different states and territories being universally recognised by all as a serious problem.36 Universal calls for standardisation and simplification have hitherto come to nought.37 One of the problems with legislation of this type is that once on the books, it rarely disappears, especially when it is protective of government. As Stevens has elegantly put it, the process is a ‘one-way ratchet’,38 which, although it may occasionally slip backward in the face of particularly vocal public protest, over the course of time remorselessly tightens its grip. In his view, complete statutory strangulation of the common law is inevitable in the longer term and we should start to prepare ourselves for it, safeguarding ourselves through greater alertness to its particular risks and staving off the worst of its excesses.

33 In most states and territories, the Acts take the name of the Defamation Act 2005, the exceptions being the Defamation Act 2006 (NT) and Civil Law (Wrongs) Act 2002 ch 9 (ACT). 34 On the process, history and politics of these provisions, see generally P Cane, ‘Reforming Tort Law in Australia: A Personal Perspective’ (2003) 27 Melbourne University Law Review 649. 35 See M Aronson, ‘Government Liability in Negligence’ (2008) 32 Melbourne University Law Review 44; J BellJames and K Barker, ‘Public Authority Liability for Negligence in the post-Ipp Era: Sceptical Reflections on the “Policy Defence”’ (2016) 40(1) Melbourne University Law Review 1. 36 See T Horan, Proportionate Liability: Towards National Consistency (Report for National Justice CEOs, 2007); J Davis, Proportionate Liability: Proposals to Achieve National Uniformity (Report for National Justice CEOs, 2009). 37 Some persist in the view that the measures were a mistake from the start. For this view and a broad comparative review of the provisions, see K Barker and J Steele, ‘Drifting Towards Proportionate Liability (2015) 74 CLJ 49, 54–55. 38 Stevens (n 11).

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Some forms of legislation might seem to be less threatening to the law than others, in so far as they purport simply to ‘restate’ or ‘advertise’ common law principles. There have been several examples of this in Australia and England in recent years.39 They represent a peculiar, new phenomenon that has elicited some excoriating criticism from some of our most distinguished judges as being a terrible waste of public money. Not only is such legislation duplicative but, as Jensen points out in his analysis of the perils of statutory formulae in the trusts field in Chapter 8, it still carries the serious risk that it may freeze a particular area of law in a single ‘canonical’ form before the time at which it has been properly developed. The predominance of the legislative method can also have knock-on ‘distracting’ effects for courts’ reasoning about the common law, as Bonython argues in Chapter 7. It can lead judges to adopt an overly deferential approach in interpreting the effects of statutes on common law rights, which takes the form of the assumption that the statute ‘covers the field’ and impliedly precludes the common law from operating in its shadow. It can also divert courts’ attention toward irrelevant inquiries and result in them levering claims within the parameters of a statutory scheme to which they are not suited, distorting the scheme itself and ignoring more suitable causes of action at common law. The first point Bonython makes about the dangers of excessive deference and the judicial assumption that a liability at common law is ‘incompatible’ with the purposes of a statute is particularly well made, because it has repercussions for the traditional principle of statutory interpretation that, unless Parliament makes the contrary intention clear, a provision should be presumed not to prejudice existing rights. Bonython’s view is that this presumption needs to be reaffirmed and that courts should only rule out common law rights of recovery where this is the express, or necessary intention of the relevant statutory scheme. This call for judges to be less cowed by statute chimes with Burrows’ insistence that they should not give up their responsibility for creating new law when the right occasion arises. Passing the buck to a legislature that has neither the opportunity, nor any interest in addressing the problem in hand, is not an option, but rather a derogation from judicial responsibility. This is a view that was clearly shared by the House of Lords in the Woolwich case,40 the realistic and determined view being taken that if we were to wait for Parliament to enact legislation giving taxpayers an automatic right to the recovery of taxes demanded ultra vires, we would still be twiddling our thumbs. In Australia, this remains the case today.41 The message here is that the increased sourcing of private law in statutory formats should not lead to courts giving up their law-creating role, but merely ensure that their law-making does not result in genuine conflict. If one is weighing the pros and cons of statute as a form of democratic, intelligible public expression on the one hand, against the benefits of the common law as an adaptive, but more piecemeal mechanism of legal development, on the other, the vote may not always

39 The classic examples often cited are the Compensation Act 2006 (UK), the Social Action, Responsibility and Heroism Act 2015 (UK) and certain provisions of the Civil Liability Acts in Australia, such as provisions restating principles relating to the breach of duty in negligence cases: eg Civil Liability Act 2003 (Qld) s 9. 40 Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 (HL). 41 For a discussion of the courts’ hesitancy in this regard and their preference not to step beyond the shadows of statutory refund provisions, see recently: ACN 005 057 349 Pty Ltd v Commissioner of State Revenue [2015] VSCA 332.

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be easy to cast and the decision will depend on a number of different factors. Codes and statutes may appeal to governments wishing to assert a new sense of national identity, their democracy, or wishing to publicise their responsiveness to the public ‘will’ in headline formats. But if governments choose to legislate it must be done in a way that is fully cognisant of the patterns of protection and the moral norms that exist at common law. It is their responsibility to use public money wisely and not for duplicative or purely symbolic purposes and they should also take account, in legislating, of the moral norms that have been carefully developed by courts over the years. Although they are therefore constitutionally entitled to dictate deference, they should be cautious, fully consultative and respectful of the knowledge of experienced experts in doing so and should not ignore the common law’s moral hegemony by leaping too quickly to new instrumental positions, particularly in response to short-term political pressures. The integrity and stability of the private law system overall must be respected. They should also be aware that whatever discretion they seek to withdraw from courts by placing rules on a statutory footing is likely to be reclaimed by them through a more flexible approach to statutory interpretation. There are downsides to this, for whereas courts creating new law in the common law system are generally explicit about their reasons for doing so and able to draw fluidly upon new reasons as they arise, the need to justify themselves in terms of ‘giving effect to the will of Parliament’ in a statutory system invites them to justify their decisions by reference to an animus that rarely appears anywhere on the face of a provision itself, and, which, in all truth, may never have existed in respect of the facts before the court. A system of pure statutory interpretation will be a system that, over time, entails an ever-grander scale of legal fiction. Whether this increases the law’s intelligibility or respectability may be doubted. As things stand, we must clearly prepare ourselves for yet more statutory intervention, whatever form this takes. Messy patterns of gradual, legislative accretion seem more likely than grand codification covering large fields in common law jurisdictions. We can therefore probably expect more complication, not less. In preparation for this, we shall need to increase the teaching not just of the traditional principles of statutory interpretation within our curricula (a process already underway in Australia),42 but also of the new norms of ‘incompatibility’ and so on that govern courts’ own standards of deference to statutory norms at common law. We shall need to examine the potential ways in which the common law can usefully inform statutory interpretation, as well as the acceptability, or otherwise, of drawing analogies from legislation into the application and/or development of the common law.43 We also need to do more to communicate to governments and legislators the long-terms costs of constant system disruptions and normative overload. An exploration of the value of restatements of confused parts of the common law in Australia is, in my view, warranted, following Burrows’ lead. We should also improve the mechanisms by which the operation of legislative provisions can be reviewed and, if need be, suspended or repealed at periodic intervals. There are signs in the Cabinet Office in the United Kingdom of some

42 Council of Australian Law Deans, Good Practice Guide to Teaching Statutory Interpretation (June, 2015), available at: www.cald.asn.au/assets/lists/Resources/GPGSI-June15.pdf. 43 See n 10.

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awareness of these issues.44 The Office of the Parliamentary Counsel notes, somewhat alarmingly, that all the incentives are stacked in favour of more complexity in legislation, not less,45 and tries to identify and engage with some of the most obvious causes. Interestingly, however, it explicitly affirms the current governmental view that legislation has a role in ‘reaffirming [repeating?] moral or ideological principles’ or indeed ‘simply reassuring the public that their concerns are taken seriously’,46 which sounds more like a party political broadcast than a defensible description of the role of legislation in the modern law. There is nothing wrong with advertising private law, but we should not place it on a statutory footing just to advertise it. There are plenty of other public information mechanisms that are cheaper and more efficient at capturing public attention, if government wishes to make its points.

V. Complex Systems and Interactions A. Internal Complexity Two different forms of co-ordination problem were identified above—one internal, the other external. The more statutory intervention there is in the common law, the more internal co-ordination problems will increase. Even independently of statute, however, private law consistently faces complex questions related to the interaction of various doctrines and remedies that have evolved in its different jurisdictional and procedural interstices. The law of negligence, or actions for breach of statutory duty, must not operate so as to undercut mechanisms for judicial review, administrative appeal or the finalisation of disputes,47 or to change the conditions of actionability of statements in the law of defamation.48 Where concurrent remedies are available, they must not be allowed to operate so as to allow a plaintiff to recover more than once in respect of his or her loss. Restitutionary claims49 and negligence actions50 must not be allowed to contradict agreed contractual allocations of risk. Specific performance is still generally not regarded as appropriate (in common law

44 Cabinet Office, When Laws Become Too Complex: A Review into the Causes of Complex Legislation (Office of the Parliamentary Counsel, March 2013) available at: www.gov.uk/government/uploads/system/uploads/ attachment_data/file/187015/GoodLaw_report_8April_AP.pdf. 45 ibid, foreword by R Heaton: ‘a striking theme of this report is that while there are many reasons for adding complexity, there is no compelling incentive to create simplicity or to avoid making an intricate web of laws even more complex. That is something I think we must reflect upon.’ 46 ibid 7. 47 See, eg, Harris v Evans [1998] 3 All ER 522 (CA) (no action in respect of allegedly negligent prohibition notice on account of availability of appeal mechanism); Phelps v Hillingdon London Borough Council [2000] 3 WLR 776 (HL) (no civil action intended by Parliament for breach of statutory duty, partly because appeals and judicial review available); Ryan D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12 (HCA) (unusually in common law jurisdictions, lawyers granted immunity regarding court proceedings in part on the basis that this would undermine the finality of those proceedings). 48 Spring v Guardian Assurance plc [1995] 2 AC 296 (HL); Sullivan v Moody (2001) 207 CLR 562 (HCA). 49 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635. 50 Brookfield Multiplex v Owners Corporation Ltd [2014] HCA 36.

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jurisdictions) unless damages are an ‘inadequate’ remedy. Where equity and law conflict, equity should prevail,51 and so on. All of these rules operate as second-order rules to prevent contradiction, or preserve particular orders of normative priority in the system of private law as a whole. The more norms are added to the system, the more critical it becomes that we understand the way in which second-order rules work, so as to preserve the rational working of the system as a whole. There is, in my view, an increasing need to research, review and rationalise the operation of these second-order principles as the complexity of the system continues to increase. Taxonomies are one way of addressing organisational disorder. Private lawyers are often accused of being unduly obsessed with them, but the obsession can be understood as a mechanism for ensuring parity of treatment for like cases, and for co-ordinating the law’s different primary rules, which is necessary if any legal system is to function effectively. Categorising can be done in many different ways and is affected by the ends of the categoriser, but there appear to be two different, generic strategies—one is to categorise using a highlevel gathering concept which does no ‘dispositive’ work in its own right, but which both relies on and expresses something true about lower-level dispositive rules that share certain important features. This is the strategy I have suggested elsewhere for understanding the law of ‘unjust enrichments.’52 The other is to categorise at much lower levels, by reference to dispositive, concrete rules. Adopting this approach, one would not talk of a law of unjust enrichments at all, but of restitutionary causes of action for mistake, misrepresentation, failure of consideration, free acceptance, duress, conversion, trespass and the like. In Chapter 10, Joachim Dietrich seeks to rationalise the various instances of accessorial liability that now appear in different interstices of private law in the former way, contrasting his approach with one that seeks to meld all of the different lower-level rules into a single, higher-level dispositive legal principle. In his view, it is a mistake to try to construct a single dispositive norm from a variety of rules that have been developed in different legal fields, but it is right to acknowledge that they can all be brought within a common, higher-level organisational framework. The benefit of this type of approach is that it is sensitive to the various different contexts in which the rules have been created, whilst acknowledging the importance and utility of drawing structural and normative analogies between them. Another organisational question that demands resolution, but which is not easy, relates to the future role of ‘equity’.53 All systems of the common law tradition are now procedurally fused, although surprisingly this stage was completed in New South Wales only as late as 1972, which probably explains why the High Court has been so keen to rationalise restitutionary liabilities in ‘equitable’, not ‘unjust enrichment’ terms.54 Debates about the

51 The term ‘equity’ here refers not to the formal body of law developed historically by courts of Chancery, but to moderating norms, the design of which is to increase the workability of first-order rules. See further Smith, Ch 9. 52 K Barker, ‘Understanding the Unjust Enrichment Principle in Private Law: A Study of the Concept and its Reasons’ in J Neyers, M McInnes, and S Pitel (eds), Understanding Unjust Enrichment (Oxford, Hart Publishing, 2004) ch 5. 53 A small sample of literature on the fusion debate includes: C Clarke, ‘The Union of Law and Equity’ (1925) 25 Columbia Law Review 1; P Baker, ‘The Future of Equity’ (1977) 93 LQR 529; J Getzler, ‘Patterns of Fusion’ in P Birks (ed), The Classification of Obligations (Oxford, Clarendon Press, 1997) 157; J Edelman, ‘A “Fusion Fallacy” Fallacy’ (2003) 119 LQR 375; A Burrows, ‘We Do This at Common Law, but That in Equity’ (2002) 22 OJLS 1; W Gummow, ‘Equity: Too Successful?’ (2003) 77 Australian Law Journal 30. 54 See, eg, Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14.

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desirability of substantively fusing rules created by common law and equity courts continue to rage. One possible position is that it is wise to assimilate rules and eradicate differences, where their purposes are basically the same, but that fusion should leave intact rules whose ends, or moral premises are different. This approach sees continuing space in the modern law for some, distinct ‘equitable’ doctrines and remedies, although it would not regard ‘equity’ as a distinct organisational category and would disperse its valuable contributions so as to bolster the frameworks of other categories. Assimilation along these lines can be achieved in one of three different ways—by abolishing the equitable rule and keeping, but adjusting the common law one; by keeping both equitable and common law rules, but making them the same (which is, I suggest, needlessly duplicative and therefore inefficient); or by abolishing the common law rule and substituting the equitable one in its place (again, with any appropriate adjustments that are considered appropriate). An alternative approach, however, views equity not as any particular, positivist body of doctrine, but as a second-order corrective system that is useful for dealing with opportunistic exploitation of a system’s first-order rules. This is the way in which it is understood by Professor Smith in Chapter 9, who accordingly forecasts a valuable and critical role for equity even beyond procedural or substantive fusion horizons. On this view, no matter what the composition of a system’s set of first-order rules, it is desirable to build in secondary, corrective orders as a way of anchoring the first order system externally, retaining flexibility and avoiding the need to engage in over-specification, complexity, or undue vagueness in the construction of first-order prescriptions. Smith’s analysis draws on systems theory, about which I say more toward the end of this section. It appears to be supported by that theory. One of the dangers of which he warns us—that of trying to accommodate complexity in private law by introducing discretion or ‘multifactoral’ tests into the construction of first-order rules, will ring true to any Australian tort lawyer. The introduction of ‘multifactorial’ tests for the existence of duties of care in this context has recently left the law in such a state of radical uncertainty that it is now very hard to predict its results.55 The most difficult question, perhaps, is how we might build a moderating second-order device into a system that is more and more statutory. If this is not to be done at level of primary, first order statutory rules (through the more flexible factors or discretions that Smith dislikes), it must presumably occur at the remedial stage. The only immediately obvious alternative would seem to be to introduce a radical system of statutory interpretation that permits judges actually to depart from, rather than apply the relevant rule, when ‘interpreting’ its application to an appropriate case, but that could then scarcely be regarded as practice of interpretation at all, and would be exceptionally controversial. The benefit of equity as a distinct set of ‘alternative’ positive law doctrine, is that courts need never appear to be departing from rules—they can claim instead simply to be selecting between different ones. That benefit will not be available in any purely statutory or codified system, which could be another reason for resisting such a development.

55 For a particularly difficult case illustrating this point, see Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412.

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B. External Complexity External relations between private law and other public and market-based systems are a second aspect of complexity. In this book, Collins, Arvind and Gray, Getzler and Whelan, Vines and Grant et al all question the extent to which private law and these systems are truly independent of one another. In his scrutiny of the interaction between private law and human rights legislation in Chapter 11, Collins hence suggests that, if one examines the workings of the system in the United Kingdom in practice, public human rights are a more serious (although not unwelcome) challenge to the autonomy of the private law system than has been suggested by ‘indirect effect’ models of the Human Rights Act 1998. In his view, the most problematic question is not whether human rights should be capable of enforcement by private individuals within the private law system (he thinks the evidence is that they already are), but who the relevant duty-bearers should be. The ‘universal’ status of fundamental human rights norms might suggest that everyone should have a private law duty to respect them (and therefore be liable in damages if they do not), but this, he intimates, will significantly implicate personal autonomy and change the existing liberal order, especially where duties to respect religious, social or political rights are concerned. It may be necessary either to limit the bite of such duties to those occupying positions of power, or to carve out special, protected domains of immunity for individuals that will preserve for them a degree of personal freedom, shielding them from the impact of some human rights obligations. Similarly, when it comes to the interaction of private law and the regulatory system surrounding financial markets that has recently failed us all so appallingly, Arvind and Gray suggest in Chapter 12 that private law has an important role to play not just as a mechanism for correcting injustice, but as a tool of political governance in the modern administrative state. This posits a role for private law more akin to that which it plays in the United States, where the law of tort in particular is regarded as an important regulatory tool. The authors’ thesis is that private law can do some things in this role that technocratic, regulatory systems cannot, owing to its ‘embedded autonomy’ and inner ethical normativity. It has the benefit of being rooted in society and of being able, therefore, to draw on a standard of ‘enlightened morality’ informed by the effects that financial wrongdoing has on ordinary individuals. Such perspectives are missing from purely technocratic responses to market failure. In this suggestion, we see advocated a principled movement from the private into the public—from the morality of our system of private justice into the philosophy of regulation itself. If Arvind and Gray are right, private law will become more important in the modern, regulatory state, not less. If it is to succeed in this role, however, access to justice needs to be improved through the removal of institutional hurdles to suit (a matter considered above, and further in Part VII below), and the common law’s substantive protection of pure financial interests needs to be extended. Getzler and Whelan’s analysis of potential tort liabilities of negligent credit-rating agencies for financial harm in Chapter 13 suggests that there may be more mileage in private law’s protection of economic interests than has hitherto been suggested, but they also note that its possibilities have been curtailed in this context in the United Kingdom by legislative intervention. This appears to be precisely the type of market-protective strategy on the part of government that we noted earlier in Australia. Governmental reactions to financial failure seem to be directed at relieving the failing market of potential liabilities for utilitarian reasons, not to use private legal liabilities in a regulatory way so as to hold market operators more firmly to account.

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The relationships between private law, insurance and social security systems are equally complex and problematic. Both Vines (Chapter 14) and Grant et al (Chapter 15) suggest potentially serious pitfalls in the current relationship. Vines points to the potentially devastating effects that public liability insurance terms can sometimes have on individuals’ access to justice, where the individual is deemed to have admitted responsibility by making an apology. She signals the importance of ensuring (by statute, if need be) that apologies are not read as admissions of legal liability, and highlights the counter-intuitive effects that current insurance industry hostility towards them can have upon the achievement of corrective justice aims. She also suggests the recognition of an internal role for insurance within the tort system in cases in which it is compulsory. Grant et al highlight the way in which the operation of social security preclusion periods in Australia currently compound the welfare problems created by plaintiffs’ early dissipation of lump-sum damages awards in personal injury cases. This, they show, leaves some of the most seriously injured victims without the funds required for their long-term care and support. Both contributions suggest that a more thoughtful, two-way, reflective relationship is required between private law, private insurance and public systems of victim-support that allow for better external co-ordination of the various rules, as well as requiring more thought about each system’s individual defects. The same message follows from recent critiques of the various voluntary, administrative schemes of reparation that have been set up in Australia by churches and governments to deal with long-term institutional abuse of vulnerable individuals. These critiques suggest that the remedial frameworks of these reparations schemes are grossly deficient when viewed from the moral perspectives of private law. Those moral messages can and should, it is suggested, be brought to bear upon such schemes, so as to facilitate important improvements in their design.56

C. Private Law as a Complex System, and as Part of a Larger, Complex System Considerable work has been done recently to try to understand the nature of law’s systemic complexity. One approach, advocated by Professor Ruhl,57 draws on complex adaptive systems theory—a theory that grew out of the physical sciences in the 1980s. A complex system, on this conception, is one involving multiple agencies, in which every heterogeneous, autonomous agent, or part of the system, is adaptive and interdependent, such that changes to one part of the system produce broader, systemic effects.58 These effects are non-linear and cannot be predicted with full accuracy, which makes it hard to tinker with the system in such a way as to produce intended outcomes. It also means that changes to the system can be difficult to reverse.59 Change in the system is a constant, but changes are not uniform in their frequency or magnitude, and even small alterations to a single component part can produce disproportionately large results. Despite its dynamic, non-linear nature, a complex

56

Degeling and Barker (n 10). Ruhl, ‘Complexity Theory as a Paradigm’ (n 9); ‘Primer’ (n 9); Ruhl and Katz (n 9). 58 Ruhl, ‘Primer’ (n 9) 891–93. 59 ibid 903: complex adaptive systems ‘cannot be rewound and restored to prior states’. 57

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system develops a basic ‘network architecture’ over time that accords it a degree of stability. It develops a ‘stable disequilibrium’. Complex systems are distinct from complicated ones— where individual components of the system display difficult features, but where the components are not in an interdependent, adaptive relationship, so that the effects of changing a component are limited to the component itself.60 If private law is a complex system in the suggested sense—and if it is itself part of a broader complex social system—there are, Ruhl suggests, several possible implications for system design, if it is to be robust enough to survive some of the side-winds of its own, unpredictable dynamics. The key, he suggests, is to build into the system an optimal blend of ‘stability, simplicity and adaptability’.61 Simplicity does not necessarily mean small numbers of rules (although presumably this would be convenient and efficient?); what is really important is that they are easily determinable and that the system itself is simple. A system’s stability is also not necessarily best assured by rigidity, but rather by ensuring the presence of sufficient ‘release valves’ to allow for robust flexibility.62 Attaining the optimal balance of these features makes the system best poised to respond to environmental change.63 It is fair to say that the full implications of this type of thinking for private law are yet to be determined at a detailed level. However, some possible conclusions to which Ruhl himself points are, first, that the common law is probably the best mechanism of first resort in governing individual rights and freedoms, owing to its adaptability and incremental operation; second, that, to the extent that regulation or legislation is necessary, it is best to centralise, rather than disperse it; and third, that when regulation is used to provide discretion for administrative action, judges should minimise their deference to that discretion.64 Another implication I have already mentioned is, fourthly, that Smith may be right to seek to preserve a second-order normative system (‘equity’, although it need not carry this name) in order to bring about optimal systemic stability—second-order rules operating as a flexible ‘release valve’ so as to allow first order rules to bend, rather than break. Fifthly, designers of the private law system and of the overall legal and social system to which it belongs should probably focus on overall system design, rather than trying to target problems using any single, isolated, component of the system. A sixth possible implication is that, whilst Occam’s razor may be a useful instrument on occasion in order to eradicate inefficient duplication and promote both rational and easily determinable rules, there is nothing wrong with more rules per se from the systemic point of view. Just as one can have too many rules to solve a problem, so too one can have too few—everything depends on the end in hand. Finally, and this is a somewhat sobering reflection, the power

60

ibid 890–91, Ruhl, ‘Complexity Theory as a Paradigm’ (n 9) 886–90. The context in which this suggestion is made is that of the highly regulated field of environmental law. Stability is defined as ‘the quality that allows relationships within the system at any one instant to remain close to the way they were the instant before’; simplicity means ‘allowing the relationships in the system to be easily determined from the system components and rules’ (note: this not the same as reducing the number of rules); and adaptability means ‘the ability to respond … to chaos, emergence, and catastrophe (as well as non-system happenstance)’ ibid. 62 ibid 889–90. 63 ibid 981–92. 64 ibid 917–26. 61

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of system designers to determine the results of a complex adaptive system is limited,65 precisely because the system comprises many different, adaptive nodes (judicial decisions, statutory enactments, social security systems etc). We may have some influence and clear intentions when we make particular common law rules, or legislate in a particular way, but we cannot guarantee the outcomes we intend, we may end up with unforeseen and disproportionate results, and some of the effects of the changes we make may be hard to reverse. We must, therefore, be constantly poised to co-ordinate, adjust and revisit the various elements of the system and their relationships with one another, and should focus on improving the design of the system as a whole to make it more robust.

VI. New Remedies, Technologies and Intangible Interests Secondary rights (remedies) enjoy an elastic, reflexive relationship with primary rights. As personal rights and civil liberties come to occupy a more central space in our public life and as individuals claim to be just that—individuals with dignity and autonomy who are entitled to be respected independently of the market and the mass—it is perhaps unsurprising that private law is being called upon to develop new and more effective remedies to protect (‘vindicate’)66 and rectify harm caused to their intangible, as well as their tangible interests. Calls for stronger ‘vindication’ at the remedial level are, in my view, the flip-side of the stronger rhetoric of rights. The more forceful the latter rhetoric becomes, the more persistent and the louder the demand for stronger remedies will be. One way of placing additional remedial power in the hands of an innocent contracting party, explored by Tettenborn in Chapter 16, is to allow that party to take self-help measures to protect her financial interests, by granting her the power to suspend her contractual performance in the face of another’s breach. Contrary to the traditional assumption, Tettenborn suggests that such powers and privileges already exist in the common law, as they do in civilian jurisdictions. That suggestion is helpful and sits comfortably alongside the common law’s traditional willingness to allow parties to respond quickly and at their own initiative to serious actual, or prospective breaches of voluntary arrangements through the more extreme measure of termination. Another mechanism for accordingly more powerful and effective remediation for the infringement of private rights lies in incentivising apologies and offers to make amends by those responsible for defamatory imputations,

65 This recognition might, Ruhl concedes, be rather depressing, but it focuses us instead on trying to make the system ‘fit’ for its own unpredictabilities—an enterprise that is more likely to prove within our grasp: ‘Primer’ (n 9) 911: ‘we will never get the legal system “just right”, at least not for long, but if we are mindful of its properties and the need for continuous work at living within its stable disequilibrium, we can hope to keep it fit indefinitely’. 66 The language of ‘vindication’ is slippery. For a full examination of the various different ways in which it used by courts in both private and public law cases, see K Barker, ‘Private and Public: The Mixed Concept of Vindication in Torts and Private Law’ in S Pitel, J Neyers and E Chamberlain (eds), Tort Law: Challenging Orthodoxy (Oxford, Hart Publishing, 2013) 59. See also Lord Scott, ‘Damages’ (2007) Lloyd’s Maritime and Commercial Law Quarterly 465; R Carroll and N Witzleb, ‘The Role of Vindication in Torts Damages’ (2009) Tort Law Review 16; D Pearce and R Halson, ‘Damages for Breach of Contract: Compensation, Restitution and Vindication’ (2008) OJLS 253; J Varuhas, ‘The Concept of “Vindication” in the Law of Torts: Rights, Interests and Damages’ (2014) 34 OJLS 253.

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a process exhaustively and expertly explored from the comparative perspective by C arroll and Berryman in Chapter 23. Such mechanisms have a potentially more effective and meaningful role in making good past and future reputational harm that a defendant has caused than mere sums of money, which are better adapted to remedying damage to property and pure financial loss. More controversial is the idea, explored by Justice Edelman in Chapter 17, that substantial awards of damages should be awarded in circumstances where a plaintiff has suffered no obvious ‘loss’ at all, purely in order to ‘vindicate’ the right infringed. Although His Honour takes no formal position on this question, his view is that the predominant function of damages is to deal with the consequences of wrongs, not to operate symbolically to affirm their importance. On this view, the award of substantial damages for a negligent sterilisation leading to the birth of a healthy child (as in the Rees case)67 lacks obvious justification. Whilst most cases can be explained in other ways, the award in Rees remains, for him, uncomfortable and problematic. The puzzle of damages without apparent loss also lies at the heart of Professor Chamberlain’s chapter on damages for ‘harmless’ breaches of privacy (Chapter 19), and of Keren-Paz’s fascinating contribution on compensating injury to autonomy (Chapter 2). Keren-Paz’s analysis of cases like Rees is that they recognise a new species of legal right to personal autonomy. The damages which courts award represent the value of the autonomy lost by a plaintiff in consequence of the non-consensual invasion of her right. The usual objection to this point of view, which Edelman is swift to voice, is that, if autonomy is an independent legal right (rather than simply a background value informing the protection of other, nominate rights), damages should logically be available for the breach of every right recognised by the law, when in fact they are not. Keren-Paz’s reasoned response is that the law only recognises rights to autonomy in respect of our most fundamental choices— ones informed by our personal beliefs, ethics, values, attitudes and world view, or which have a significant bearing on our lives. The choice whether or not to eat food to which one has a fundamental religious objection might be one of these. So might one’s right to maintain one’s privacy. Indeed, Chamberlain herself appears to favour the ‘loss of autonomy’ explanation of damages for (otherwise) harmless snooping in this context, although her conclusion on this question is perhaps less challenging since the ‘loss of autonomy’ in such a case is consequential upon the infringement of another, legally recognised right, rather than being actionable per se. My own preferred explanation68 is that such awards may sometimes represent the value of a plaintiff ’s lost power to obtain an effective remedy to prevent the wrong in question. A possible advantage of this explanation is that such powers attend only a limited and relatively predictable range of primary rights (for example, the person, property and now, privacy), so that the question of when such damages are likely to be available can be limited and guided by known precedents in which injunctive relief would normally issue to prevent a rights-infringement ex ante. The loss of legal powers clearly involves a loss of autonomy, precisely because legal powers promote it, but that is different to saying that autonomy is an independent, private law right.

67 68

Rees (n 14). K Barker, ‘Damages Without Loss: Can Hohfeld Help?’ (2014) 34 OJLS 1.

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The future development of this debate promises to be fascinating and it is hard to predict the conceptual route the law will prefer. It seems probable that autonomous human choice will come to be more strongly protected in the law, whichever analytical avenue is taken. Both privacy law and the law of defamation currently promote human autonomy (as well as dignity) and—whether or not autonomy comes itself to be regarded as an independent legal right—privacy protections will clearly bring greater respect for autonomy. They will also need to be carefully co-ordinated with remedies for defamation, so as to avoid contradiction where there is potential overlap (as to which see Rolph’s valuable contribution in Chapter 22). In the marketplace, too, threats to autonomy are undoubtedly greater than ever by virtue of what Mik (Chapter 18) calls new ‘persuasive’ technologies working through intelligent electronic interfaces, such as Facebook and Google. The point about such technologies, she points out in her fascinating exposé, is that they create an entirely new type of informational asymmetry, invisibly learning our behaviour patterns and then pre-empting and predicting our choices. This is no longer a case of sellers simply knowing more than buyers and commanding more economic power—it is one in which they know more about buyers than buyers do themselves, and then ruthlessly (automatically and technologically) manipulate buyer choice by exploiting personal information. Such practices may seem to demand both private law and regulatory responses, but there is a pragmatic hitch, in the sense that personal information is now itself the currency oiling the internet economy. Prohibiting the collection and use of such information—harmful as it may be to privacy and choice in the ways Mik identifies—might also result in a collapse in the services themselves. There is nothing we can do to prevent privacy being commodified, and perhaps we should not do so, but Mik is surely right to suggest that this should only be done through properly informed consent. A final controversy relates to the question of whether pure, emotional interests should be accorded the protection of private law. The current, general position is that they are not.69 Whilst one might think that this is the final logical step in the law’s journey toward greater respect for human subjectivity and autonomy, Sinel and Shuurmann (Chapter 21) provide a powerful normative case against that move. This is not based on traditional, instrumental concerns about indeterminate liability, or fraud, nor on the false premise that emotional injury is any less serious that physical injury, or more within the control of a victim, but rather on a formalist, moral account. A full understanding of human emotion recognises that it has both physiological and cognitive aspects lying beyond the control of human agents, so that to impose responsibility on a defendant for harm that is entirely subjective and contingent would, the authors suggest, be to violate the reciprocal freedom to which we are all entitled as human beings. Although some have, therefore, questioned the rationality

69 In both Australia and the UK, courts thus insist on proof of a recognisable (or ‘recognised’) psychiatric illness, unless emotional harm is consequential on some physical injury to person or property, or unless the purpose of a contract was to provide pleasure, or relieve anxiety. See generally, on the tort side: P Handford, N Mullany and P Mitchell, Mullany and Handford’s Tort Liability for Psychiatric Damage, 2nd edn (Sydney, Thomson Reuters, 2006). In the United States, the position appears to be somewhat more flexible, and some commentators have suggested that the line drawn in tort cases is irrational in scientific terms: R Mulheron, ‘Rewriting the Requirement for a “Recognised Psychiatric Injury” in Negligence’ (2012) 32 OJLS 77.

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of the law’s demarcation of a line between psychiatric damage and emotional harm, the authors’ approach gives us a good reason to question the morality of its erasure.

VII. Process Challenges and the Privatisation of Justice The protection of autonomy through private law’s substantive rights and remedies of course means little if access to justice is denied. The rise of substantive rights must, if normative consistency is to be preserved across domains, therefore also mean the rise of procedural rights and affordable and accessible processes of enforcement. The introduction of efficiencies and market-processes into this sphere has been paraded as a neo-liberal solution to the withdrawal of state support from the civil litigation process, but the contributions of Morris (Chapter 24), Bartlett (Chapter 25) and Giabardo (Chapter 26) all raise concerns about these developments for reasons already articulated above. Short-term savings may have long-term costs, in terms of ethical standards, quality of welfare outcomes and the development of the common law system as a whole. There are some ironic contradictions in this regard with the agenda proclaimed for private law in connecting with the public values of human autonomy and human rights already mentioned earlier in this chapter. There is also a disconnect with the aims of those who support stronger ‘vindicatory’ private law remedies in order to send out important symbolic, institutional messages, canvassed in the previous section. The rhetoric of rights is empty if it has no formal lectern from which to speak. Although I am personally sceptical about the extent to which it can be said to be a role of private law (as opposed to a beneficial effect) to ‘mark’ the importance of rights, privatising the process so effectively that none of private law’s effects are public, and so that rights of action themselves become wholly commodified market products for individuals (or their insurers) to negotiate and trade behind closed doors, raises serious questions about the public integrity of justice and, indeed, its adaptability and health as a precedential system. No one is suggesting that the public face of private justice will disappear completely through the development of alternative dispute resolution procedures, or that the development of such systems and measures to drive down costs is a bad thing in itself, but a balance must again be struck between public and private systems of doing private justice. When government is thinking about systemic costs, it should build into its calculation the externalities that are likely to be occasioned by a diminished system of private law that lacks clear, public precedents and developmental capacity. Such costs, because invisible and unpredictable, are currently omitted from the balance sheet. A potential alternative solution to the apparent drying-up of common law precedents caused by the disappearance of the civil trial and the switch to alternative dispute resolution, might, of course, be for government to have further recourse to statutes to publicise appropriate standards. This would tip the current system still further down the path toward statutory emersion. If Ruhl is right, that could be unfortunate from the point of view of the need to maintain a healthy, adaptive system. It would create a top-down, centralised system of regulation that is unsuited to the job of keeping pace with the evolution of the complex system.70 It may also be practically 70

Ruhl and Katz (n 9) 209.

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unrealistic to expect statutory enactments to take up all of the slack created by the diminution of common law norms resulting from ever-higher recourse to out-of-court solutions.

VIII. Conclusions The messages of this book regarding the best agendas for private law in future years are many and varied, and they span a variety of important moral, doctrinal, methodological and procedural challenges. If any of the observations regarding the nature of law as a complex adaptive system are true, then it will be impossible to predict or control the exact effects of any changes that we choose to make to any single component of the private law system in future years. Assuming that the public systems and markets in which private law is embedded are also adaptive and, in one way or another, interconnected at a governance level with private law, we cannot be sure how changes in those systems may impact on private law’s own functions and effects. If there is a singular message, however, it is that we (and here I mean judges, legislators, policy makers and academics alike) can no longer afford to be reductionist in our approach, focusing on our own problems and challenges as if they were discrete. Proper co-ordination is required between us all to make our private system of justice as robust, usable and morally attractive as it can be. This requires more reflexive thinking between all actors within the system and between the system’s various different parts. The biggest challenge of all, in my view, is how best to connect the various actors and actions to one another in a way that is most likely to promote our collective ends. We hope that this book makes some progress toward the construction of a community of endeavour and fruitful cooperation in this regard.

2 Challenges for Private Law in the Twenty-First Century ANDREW BURROWS*

I. Introduction In thinking about the challenges faced by private law in the twenty-first century, I should stress at the outset that I am putting to one side those issues of overriding political importance, such as maintaining the rule of law and access to justice, that affect all areas of law, private and public, and all lawyers, whether academic or practising. Rather, my focus is on those challenges that are of most direct importance to academic lawyers working in private law, as opposed to other areas of law. It will be assumed for the purposes of this chapter, that one can sensibly distinguish between private and public law. And, in line with the conventional approach, by private law, I mean that part of the law concerned with the legal relationship between individuals—the legal rights that one (legal) person has against another—rather than that part of the law (public law) concerned with the state’s legal constitution and the relationship between the individual and the state. I am also, of course, looking at this topic through the eyes of an English lawyer, and some of what I have to say may seem less relevant in Australia. There are two main challenges for private law that I would like to focus on in this chapter. The first and most general is how best to keep private law alive and thriving in the universities. There are signs of disease and potential death that we must understand and confront. The second is the challenge posed by the non-accessibility of the common law, and here, in what I hope you will not consider too much of a self-indulgence, I want to discuss my ongoing Restatement of English Law project. Before I come to either of those two topics, I want to mention briefly what many may consider to be the greatest of the challenges facing private law. This is the challenge posed by ever-increasing legislation, both primary and secondary. For a private lawyer in the

* A version of this chapter was presented at the conference on Private Law in the 21st Century held in Brisbane on 14–15 December 2015. I am most grateful to the organisers of the conference, Kit Barker, Karen Fairweather, and Ross Grantham and to the University of Queensland TC Beirne School of Law for inviting me to participate, and to those attending for their helpful comments. I would also like to thank Professor Kenneth Reid of the University of Edinburgh and Professor Reinhard Zimmermann of the Max Planck Institute for Comparative and International Law at Hamburg for their helpful comments and insights.

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common law tradition it is the case law—the decisions of the courts—which has t raditionally been the primary focus of attention and which stimulates the greatest interest and excitement. We are never happier than when we are analysing, and disagreeing with colleagues about, the latest United Kingdom Supreme Court or Australian High Court decision. In contrast, legislation in the area of private law is often regarded as tedious and dull. We have traditionally tended to deal with statutes and statutory instruments under sufferance as a necessary evil. Yet, as Dean Calabresi has expressed it, this is ‘the age of statutes’.1 So a major challenge for private law is how to deal with the ever-increasing tide of legislation, both p rimary and secondary, and including, as regards the United Kingdom, legislation emanating from Europe, that impacts on private law. I looked in detail at some aspects of that challenge in an article in 2012.2 As far as private lawyers are concerned, the basic theme of that article was that, as legal scholars and teachers, we need to take seriously the challenge of studying statutes. For a proper understanding of the law, one simply cannot look at the common law and statute in compartmentalised isolation from each other. I do not want to repeat the arguments in that article, although I will return later to how one should deal with the influx of legislation in the specific context of restating the law of contract. However, there is one particular issue, only lightly dealt with in the article, on which I would like to develop an argument which a number of commentators have found controversial.3 It is of especial importance to the future vitality of private law. This is the issue of the extent to which private law should be developed by the courts, or whether, on the contrary, reform is best left to legislation. In other words, how far should one support judicial activism in relation to private law? So, to give a relatively recent example, in R (Prudential plc) v Special Commissioner of Income Tax4 the Supreme Court had to decide whether to extend to accountants giving legal advice the legal professional privilege against disclosure that is enjoyed by lawyers giving advice. The majority of five (Lords Sumption and Clarke dissenting) decided that

1

G Calabresi, A Common Law for the Age of Statutes (Cambridge MA, Harvard University Press, 1982). Burrows, ‘The Relationship between Common Law and Statutes in the Law of Obligations’ (2012) 128 LQR 232. 3 See, eg, J Lee, ‘The Doctrine of Precedent and the Supreme Court’ (Inner Temple Lecture, April 2011) 2, 17–18; Sir Anthony Mason, ‘A Judicial Perspective on the Development of Common Law Doctrine in the Light of Statutory Developments’ in A Robertson and M Tilbury (eds), The Common Law of Obligations: Divergence and Unity (Oxford, Hart Publishing, 2016) 119. 4 R (Prudential plc) v Special Commissioner of Income Tax [2013] UKSC 1, [2013] 2 AC 185. For a good recent example of the Supreme Court debating this issue in the public law context of a challenge under the Human Rights Act 1998 to the criminal law on assisted suicide, see R (Nicklinson) v Ministry of Justice [2014] UKSC 38. By a 5:4 majority it was held that it was institutionally legitimate for the courts to make a declaration that s 2 of the Suicide Act 1961 was incompatible with Art 8 of the European Convention on Human Rights. But of the majority, only Lady Hale and Lord Kerr would have gone ahead and immediately made such a declaration: Lords Neuberger, Mance and Wilson preferred to defer making such a declaration until the Legislature had had a chance to consider the matter. The minority (Lords Sumption, Clarke, Reed and Hughes) reasoned that it was institutionally inappropriate for the courts to make such a declaration because, inter alia, it was a matter raising a fundamental moral and social dilemma on which Parliament had already made a choice. In the Divisional Court [2012] EWHC 2381 (Admin), [2012] HRLR 32 [75], Toulson LJ said that, for reasons of ‘competence, constitutionality, and control of the consequences’, it was a matter for Parliament, not the courts, whether to amend the law to legalise voluntary euthanasia. 2 A

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that extension should not be made and some of the reasoning put forward was that this was more appropriately a matter for the Legislature than the courts. So, for example, Lord Neuberger said, the question whether LAP [‘legal advice privilege’] should be extended to cases where legal advice is given from professional people who are not qualified lawyers raises questions of policy which should be left to Parliament.5

And later he went on, it seems to me that this appeal gives rise to an issue, possibly a series of issues, of policy, which constitutes an area into which the courts should generally be reluctant to tread. Rather than extending LAP beyond its present accepted boundaries, we should leave it to Parliament to decide what, if anything, it wishes to do about LAP.6

In Lord Hope’s words, ‘If there are reasons of public policy for making the change, the matter should be left to Parliament.’7 And Lord Reed said: More fundamentally, it is necessary to give consideration to the respective roles, in relation to the development of this area of the law, of the courts, the executive and the legislature. In doing so, it is necessary to have regard to the measures taken (or not taken) in this area by the executive and the legislature, after consultation and consideration of a wider character than can be carried out by courts determining disputes between particular parties. In my judgment, having regard particularly to the latter consideration, the court should decide the case as Lord Neuberger PSC proposes.8

I regard that line of reasoning as mistaken. Legal professional privilege is a concept developed and refined by the courts and, as made clear by Lord Sumption in his dissent, there is no reason why, in adopting the standard approach to common law development, legal professional privilege should not be extended by the courts, if appropriate. This is not to deny that there are arguments both ways on the general question of judicial activism. In particular, there is, at least at first sight, an attractive argument that the answer should depend on the extent to which a wide-ranging policy choice, as opposed to the application or development of principle, is in issue. But to try to draw a sharp distinction between principle and policy is fraught with difficulty. The two merge. Even if a rigid distinction could be sensibly drawn, my conclusion would in any event be that, at least in most areas of private law,9 the United Kingdom Supreme Court or the High Court of Australia should reject the argument in favour of waiting for legislation in a situation where there is a judicial opportunity to develop the law in a desired direction. I reach that conclusion for two, tie-breaking, pragmatic reasons. First, one can never predict what the Legislature will do. For the judges to refuse to develop the law judicially, on the ground that the Legislature can deal with the issue more appropriately, is to forgo an opportunity to improve the law on the basis of the lottery that

5

ibid [52]. ibid [61]. 7 ibid [81]. 8 ibid [101]. 9 I tentatively put to one side family (private) law because of the especially wide-ranging social policy choices that that area often presents. 6

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is Parliamentary law reform. In any particular case, to reject judicial law reform in favour of legislation may be criticised as an irresponsible gambling-away of an opportunity that may never arise again. Secondly, if what the courts do by way of judicial law reform is regarded as undesirable by the Legislature, the application of Parliamentary sovereignty means that it is always open to the Legislature to reverse that reform by legislation. In our system, the reverse of course is not possible. So my pragmatic conclusion is that in private law, the default position should be that, where there is the possibility of making a desirable change to the law judicially, the judges should seize that chance in line with the common law’s incremental tradition. It is normally an unacceptable denial of justice to refuse to develop private law on the ground that reform is best left to the Legislature. The arguments by the majority in R (Prudential plc) v Special Commissioner of Income Tax fall foul of that objection. Indeed, it may be that deference to possible legislation is often being used by judges (and was being so used in that case) who, for other good reasons, do not favour the development in question. If so, that is a disingenuous approach. Judges should rely rationally and openly on the true reasons for their decisions.

II. Keeping Private Law Alive and Thriving in the Universities After that entrée, I now turn to the first of the two main challenges that I am considering. Although private law within my own university of Oxford is somewhat sheltered from the worst of these problems—not least because of the huge (some would say excessive) concentration on undergraduate core subjects through the tutorial teaching system—in a typical university in England and Wales, private law is struggling. Symptoms of the struggle include the following. The teaching of private law subjects is commonly carried out by junior lecturers; there are few, if any, Chairs or senior lectureships confined to private law;10 research by faculty members in private law is either not being carried on at all or, if it is, is often derided as being old-fashioned and nothing more than doctrinal practitioneroriented black-letter law; and there are very few D Phil students researching private law compared to the many writing on, for example, public international law, human rights, or criminology. Perhaps oddly, the research councils and heads of law schools seem to prefer expensive projects that involve empirical research and/or are multi-disciplinary, rather than the highly cost-effective, largely solitary research—requiring little more than a library (or computer) and thinking time—that typifies research in private law. What the academic private lawyer needs is the buy-out time to conduct research, but the research itself involves little expenditure. Sitting in a library or at one’s computer trying to produce the best

10 A welcome recent reversal of this trend has been at King’s College London, where a Chair and Senior Lectureship in private law have been created.

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interpretation of complex cases or legislation on contract, tort or trusts, or trying to unravel conceptual puzzles in commercial law, costs little and, almost for that very reason, appears to be dismissed as not being proper research by some. I have recently sat on several appointment committees to Chairs where it was regarded as a virtue that an applicant had attracted large grants for his or her expensive research, in comparison to someone who had been very productive while merely requiring buy-outs of time, or no buy-outs at all. Although this was disputed by those who were assessors, there was a widely held belief among legal academics in the United Kingdom that doctrinal research was looked upon less favourably in the recent (2015) Research Excellence Framework (REF) exercise than empirical (or, it might be added, highly theoretical) work. Looked at in a different way, obtaining a true understanding of the law and guiding practitioners and judges in relation to the development of case law or the best interpretation of statutes seems to be viewed as a less worthy pursuit than, for example, standing outside the legal system and applying to it some grandiose theory, or feeding ideas and information and statistics in to those who may be in a position to influence policy choices. So, in a nutshell, within the universities the typical private lawyer is, or is in danger of becoming, a secondclass citizen or, one might say, a dinosaur. As the late Lord Rodger put it, in a characteristically colourful description: There seems to be a perception in academic circles [in the United Kingdom] that the real action is no longer in the area of private law but it is to be found elsewhere, in the new, ‘cool’, subjects of public law or European or environmental or international law.11

If these are the worrying symptoms of a decline of private law, what then are the causes of the disease? Three main causes may be identified. First, there has been the rise in importance of public law. Fifty years ago, judicial review of executive action barely existed, the European Convention on Human Rights had virtually no impact on domestic law, and constitutional law in the United Kingdom was treading well-worn paths, dealing with topics such as Parliamentary sovereignty and constitutional conventions. Devolution within the UK was not even mentioned, let alone studied. That picture has been transformed over this period of time. The number of cases dealing with judicial review has exploded, the passing of the Human Rights Act 1998 has led to a huge growth in domestic claims against public authorities based on the ECHR, and constitutional matters, particularly concerning devolved powers to Scotland and Wales, are everyday news. If one examines, for example, the work-load of the House of Lords and UK Supreme Court, there has been a very dramatic increase in public law (including human rights) cases since 1972.12 With this ever-expanding public law, it naturally follows that, in the universities, far more time than previously has had to be found for public law and inevitably this has, to some extent, been at the expense of private law. Even if one is the sort of academic lawyer who is most interested in what the courts are doing, the explosive growth of public law in the courts has made it at least as topical and practically rooted as private law. 11 Lord Rodger of Earlsferry, ‘Judges and Academics in the United Kingdom’ (2010) 29 University of Queensland Law Journal 29, 34. 12 A Paterson, Final Judgment: The Law Law Lords and the Supreme Court (Oxford, Hart Publishing, 2013) 17, Table 2.1 shows an increase from 13% of cases to 40%. Like Paterson, I exclude from public law for these purposes criminal law, although that can of course be regarded as an aspect of public law (perhaps oddly, the number of criminal law cases going to the highest court has declined significantly).

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A second main cause is the lure of commercial practice. Private law, especially contract law but also parts of tort and property law, not to mention private international law, is the bedrock of commercial law. The salaries paid today to commercial lawyers plainly massively exceed those of a university academic, even if one includes professors at the top of the university pay scale. It naturally follows that there is an exodus from the universities of superb students who are most interested in private law. So, for example, the Oxford BCL course, with its advanced options on, for example, Restitution of Unjust Enrichment and Commercial Remedies, operates as a sort of finishing school for the very best private law students, who primarily wish to become commercial barristers in London, or Sydney, or Brisbane. Even those few who do embark on a D Phil in a private law subject may see it as essentially a passport to a lucrative and intellectually satisfying career in commercial practice. In contrast, while there are, of course, interesting careers in practice in all areas of law, those studying public law or more theoretical subjects such as jurisprudence, are less able to turn their academic interests into ‘filthy lucre’ and are presumably therefore more likely to wish to stay in academia. Put another way, if there are difficulties in recruiting and retaining high quality academics in private law, this may explain why universities turn their attention and focus to other subjects and downgrade the importance attached to private law. A third main cause is the change in legal academic scholarship. Scholarship in England and Wales on private law has tended to be of a traditional, doctrinal type, albeit perhaps increasingly comparative, with a focus on case law and on interpretation of complex material and on resolving conceptual puzzles. Analytical thinking is at the forefront. The audience for this sort of research includes, perhaps most obviously, judges and practitioners. There is relatively little concern with political values. In contrast, legal scholarship in many other areas is concerned with wide policy and politics, with empirical research and social science techniques generally at the fore, and with the primary audience being fellowacademics and policy-makers, not practising lawyers. Solving hard conceptual puzzles, understanding the fine detail of the law, and producing rigorous and elegant legal interpretations are not driving this type of legal scholarship. Of course, it may be difficult to be sure that the changing trends in legal scholarship have themselves influenced the decline in interest in private law, rather than the truth being that the old styles of scholarship are less suitable for the subjects that have taken over from private law. But my perception is that the new appetite for different styles of legal scholarship has itself served to undermine the position of private law.13 At a deeper level, one can argue that this changing trend in legal academic scholarship is itself a reaction to dissatisfaction with traditional doctrinal private law scholarship. In deriding formalism, the realists14 (and their successors, the critical legal

13 See also the implied linkage between private law and doctrinal legal research in the following passage from the inaugural lecture of Ken Reid, ‘Smoothing the Rugged Parts of the Passage: Scots Law and its Edinburgh Chair’ (2014) Edinburgh Law Review 315, 339–40: ‘In English universities there has been a sharp move away from doctrinal scholarship, following a trend which was already all too apparent in the United States; and in some of the universities of Scotland too, there is an evident decline in the number of scholars working in the field of private law.’ 14 It has been suggested to me that the anti-doctrinal reasoning that I am here presenting as being part of the realist tradition is to adopt an inaccurate caricature of that tradition. For a different view of realism, which suggests, for example, that placing importance on rules, concepts and taxonomy is not antithetical to realism, see H Dagan, Reconstructing American Legal Realism and Rethinking Private Law Theory (Oxford, Oxford University Press, 2013) esp 25–26, 43–44, 54–59, 133–35.

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scholars) have argued that producing elegant interpretations and conceptual classifications of the law merely serves to mask the reality of political value choices made by the courts. Indeed, one may regard the growth in the ‘law and’ movements in the USA, especially the law and economics movement, as precisely designed to try to fill the void left by that attack on formalist private law reasoning. If the above accurately represents the symptoms of the decline of private law,15 and their principal causes, what are the possible cures? Or is the continuing decline of private law in the universities inevitable? Taking an optimistic view—and, of course, the very holding of this conference16 provides grounds for optimism—it is my belief that the way forward in protecting private law in the universities lies in reinvigorating research on private law and harnessing the links to commercial practice. Plainly one cannot rewind the syllabus to the days before the growth of public law. Nor would one want to do so, even if one could. Public law, in all its range across civil and criminal law, must, of course, continue to be afforded the high importance that it merits. However, there is no good reason why private law should be afforded inferior status. Public law and private law should be viewed as equally important and central to legal teaching and research. In reinvigorating private law research, it seems to me essential that the merits of rigorous, doctrinal analytical research on case law and legislation should be re-emphasised. In other words, rather than seeing the cure to reviving private law as lying in a replacement of traditional doctrine by, for example, deep philosophical or sociological theory, it is my view that practical legal scholarship, including comparative law, should be applauded, not derided.17 Harry Edwards famously denounced the disjunction between some United States law schools and practice in the courts, and called for a return to practical legal scholarship that was comprehensible by, and useful to, judges and practitioners.18 Certainly, it is disappointing to find that, from the 1970s onwards, the number of articles in the top United States law journals that would excite an English private lawyer can be counted on the fingers of two hands. And anecdotal evidence from the USA indicates that, ravaged by the onslaught of realism and the law and economics movement19 that was a reaction to it, some

15 I am conscious that anyone passionate about their area of speciality may feel that it is under threat, or is not given the attention it merits. So, for example, I have heard it said that the English universities do not take criminal law sufficiently seriously which, from the perspective of a non-criminal lawyer, does not appear to be the case. Of course, I would be delighted to be convinced that the symptoms of a decline in private law that I here describe are based on my personal paranoia. 16 As does, eg, the biennial Obligations conference. 17 Where, in one country, there are many jurisdictions with different state common laws (as most obviously in the USA), it is of course true that the focus of the law schools and doctrinal academic lawyers must be comparative, with a greater focus on what the law ought to be, rather than what it is in any one jurisdiction. There is little point in equipping law students only to deal with the law in one state, given that most will wish to be able to practise in, or across, many states. I am most grateful to Professor Hanoch Dagan for stressing this point to me. 18 H Edwards, ‘The Growing Disjunction between Legal Education and the Legal Profession’ (1992) 91 Michigan Law Review 34. Edwards’ article stimulated 18 responses in a symposium in the (1993) 91 Michigan Law Review, of which perhaps the most important was R Posner, ‘The Deprofessionalization of Legal Teaching and Scholarship’ (1993) 91 Michigan Law Review 1921. 19 It has been said that in the USA, analysis of the law has become dominated by economists whose research interest is law.

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judges and lawyers have simply lost the knowledge of legal doctrine and the skills of practical legal reasoning that go with it. Arguing about ‘the merits of the case’ is no substitute for legal reasoning. Nor, in my view, is a retreat into deep theory. The American Law Institute, through its wonderful Restatements of United States law has kept alive the flame of US private law as a practical discipline, but the ALI is a private charitable organisation operating outside the universities and I am told that, within the universities, those who work on the Restatements sometimes tend to be dismissed as second-rate (‘black-letter’) legal scholars. It may be that, at root, the need arises to explain in depth why doctrinal and practical legal reasoning is so important. To do that, one might start with the law that is argued about in the English and Australian courts. It is an obvious point, but deserves highlighting, that it is no good going to the United Kingdom Supreme Court, or the Court of Appeal, on a private law matter simply with an appeal to the justice of the case. The appellate judges want to hear legal argument, based on precedent, sometimes including comparative law, in order to arrive at an answer to the factual question before them that not only satisfies their intuitions, but is also justified according to legal rules and principles. Private law as applied in the courts is a system of practical legal reasoning focused on providing answers to factual disputes. In the light of that, there seems every good reason why those of us researching in that area should apply the same techniques. If the English courts are not using, for example, economic analysis, or insights from sociology or deep philosophical theory in deciding private law cases—and clearly they are not20—it is hard to see why one should regard those as primary tools of analysis. Surely, at least in the first instance, it is justifiable to analyse a case using the language and approach adopted by those arguing and deciding the case. This is not to deny that other approaches may be interesting and relevant. But that they should be seen as a substitute for—or as somehow more important than—doctrinal reasoning seems perverse. As Lord Rodger wrote: [O]ne has to wonder whether it is altogether satisfactory for academic writers to go direct to the more theoretical aspects of a subject without ever really engaging with the nitty-gritty of how it actually operates in practice.21

In other words, studying law first and foremost requires that one truly knows and understands the details of the law; and one acquires that knowledge and understanding by doctrinal analysis and practical legal reasoning. What I have said here applies in much the same way to legislation, as it does to case law. Indeed, the quote from Lord Rodger that I have just referred to was immediately prefaced by a plea for more academic work on statutes. As I have mentioned many times—and sorry to bore those who have heard this before—one of the greatest pleasures of my working life

20 For two recent examples of superb judgments of the UK Supreme Court on matters of private law, where the reasoning is practical doctrinal reasoning at its very best (note, without a hint of economic or philosophical reasoning), see the conjoined appeals in Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67 (on penalty clauses) and Menelaou v Bank of Cyprus [2015] UKSC 66 (on subrogation and unjust enrichment). 21 ‘Judges and Academics in the United Kingdom’ (2010) 29 University of Queensland LJ 29, 36. It is clear from the context that by the words, ‘how it actually operates in practice’, Lord Rodger was referring to the work of the courts and practitioners. He was not making a veiled reference to law in its social context.

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was having the opportunity at the Law Commission for England and Wales of working with Parliamentary counsel, the drafters of primary legislation. They are rightly widely regarded as brilliant lawyers. I saw them in close proximity and I know just how brilliant they are. Why are they brilliant lawyers? It is not because they have interesting views on policy, or because they have studied the political, or philosophical, or economic values underpinning the law. They are superb lawyers because they have an ability to put into words, in a way that works on the facts of everyday life, policy ideas and political values that others feed to them. So why are we shying away from being proud in our own academic work of those lawyerly qualities—careful and clear analysis of detail and of understanding the practical application of rules to facts—that we admire so much in the creation of good legislation and in the practice of law? It may of course be that those who criticise the doctrinal lawyers, or seek to downgrade their status, do so because they find the autonomous study of law boring and unchallenging.22 Some find grand, high-level theories, even if removed from practicality, far more interesting than picking through fine working detail. I have heard it said that doctrinal reasoning amounts to nothing more than mindless description that could be carried out by anyone with half a brain. The clever ones are those who develop the grand theories. For someone who finds private law endlessly fascinating and, in many respects, extremely complex—so that to obtain a true understanding of the concepts and principles is very challenging—it is hard to see how all this can be regarded as either easy or dull. Without wishing to extol the brain-power of the finest private lawyers in academia, one might question whether the finest legal brains at the commercial bar, or on the Supreme Court, or in the Office of Parliamentary Counsel, are really embarked on mindlessly simple or boring tasks. It might also be said, I suppose, that the task I am marking out for the academic private lawyer is really a task for a legal practitioner faced with arguing a difficult point in a particular case. Put another way, it might be said that, if one is so close to the world of practising law, one might as well go and join it. That objection misunderstands the role of an academic in being able to stand back from the detail of any specific case and to see the single instance as part of a coherent whole. It was a role so clearly articulated by great figures such as Lord Goff23 and Professor Peter Birks,24 both of whom stressed the different, but complementary, relationship between, on the one hand, judge or practitioner and, on the other, university jurist.

22 In his very interesting article advocating a move away from doctrinal analysis towards ‘critique’ in law schools, N James, ‘A Brief History of Critique in Australian Legal Education’ (2000) 24 Melbourne University Law Review 965 begins by saying that he found doctrinal law dull, dry and difficult: ‘I do not have fond memories of my time as an undergraduate law student … it all seemed so dry, so technical, and so irrelevant. It was not until I commenced my postgraduate studies that I discovered an approach to law that was of genuine interest to me: critique.’ 23 Lord Goff of Chieveley, ‘The Search for Principle’, Maccabean Lecture in Jurisprudence, 1983, reprinted as an appendix to W Swadling and G Jones (eds), The Search for Principle: Essays in Honour of Lord Goff of Chieveley (Oxford, Oxford University Press, 1999) 313–29. 24 P Birks, ‘The Academic and the Practitioner’ (1998) 18 Legal Studies 397, 400: ‘For its library the common law now relies for the most part on the university jurists. Nor could this possibly be otherwise. Research and writing are hard work. They make a heavy demand on time. The day-to-day pressures on barristers, solicitors and even judges are now too great.’

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To be absolutely clear—and I have been misquoted on this in the past—I am not suggesting that doctrinal or practical legal reasoning is the only form of analysis worthy of pursuit by legal academics.25 Of course I am not saying that. Different forms of analysis, and critiques, of the law plainly have a role to play. Many types of flower should be encouraged to bloom in our law schools.26 So, for example, I applaud the work of those engaged in sociolegal studies, just as I do the work of great figures of jurisprudence. Ideally all law students, while not sacrificing the core focus on doctrine, should have some exposure to legal history, sociological theories of law, philosophical reasoning and economic analysis. Indeed, there is indisputably a very difficult question for every doctrinal lawyer as to how deep a theory one needs to have in order to make sense of the law, while remaining intelligible to those who have to decide and argue about particular facts.27 At All Souls College, I have friends who are professional philosophers who seem to think that almost everything that any lawyer says in so-called legal reasoning is hopelessly superficial. However, my essential point is that, precisely because law (unlike philosophy) is a practical subject, doctrinal or practical reasoning should remain at the core of legal research and training, such that it would be quite wrong for that type of reasoning to be relegated to the side-lines. At our core, we must be able to talk the language of, and interact with, those who are practising law, whether as barristers, solicitors, judges or draftsmen. Yet, in many law schools, it is that doctrinal core that is under attack. It is also incorrect to suggest that doctrinal analysis offers no critique of the present law.28 Anyone who thinks that should come along to the BCL classes on Restitution, where they will hear extensive debate about whether the latest case is right or wrong. Similar arguments go on in the courts, especially the higher courts. One would not be preparing students for practice, at least at the Bar, unless they were constantly being challenged to decide for

25 Several years ago, in a book review, my old sparring partner, Steve Hedley, fundamentally misinterpreted a passage of my book Understanding the Law of Obligations (Oxford, Hart Publishing, 1998) at 113, as my saying that all proper legal academics should be doing doctrinal scholarship. Quite to the contrary, I was trying (perhaps clumsily, although the context makes this absolutely clear) to argue against the oft-cited modern view that one is not a ‘proper legal academic’ if one is doing doctrinal scholarship. For his review, see [1999] Lloyd’s Maritime and Commercial Law Quarterly 578, 579. For my response, see [1999] Lloyd’s Maritime and Commercial Law Quarterly 582. 26 See the quote attributed to Mao Tse-Tung, ‘Let a hundred flowers bloom, let a hundred schools of thought contend.’ 27 Ernest Weinrib in The Jurisprudence of Corrective Justice (Oxford, Clarendon Law Lectures, 2014) Lecture 1, 10, draws on the analogy of Jacob’s ladder, to indicate how detailed law can be seen as linked to higher-level theory: ‘One can imagine this system as a juridical version of Jacob’s ladder, “set earthward with its head reaching into the heavens, and the angels of the Lord ascend and descend on it” (Genesis ch 28 v 12). Each rung of this ladder both abstracts from the determinations below it and provides the determination for the rung above it. The ascent up the ladder is from the more particular to the more inclusive. The most inclusive abstraction of all is correlativity, because it abstracts from the content of all the other abstractions of private law. And like the angels who first ascend and then descend, corrective justice works its way up from the particular normative ideas and institutional arrangements of private law to the abstract representation of its structure, and then works back down to hold the particulars true to that structure.’ Using this analogy, the difficult question is in deciding at what level of rung one stops being intelligible to the practitioner who is working at the lower rungs of the ladder. I am most grateful to Professor Jason Neyers for drawing my attention to this analogy. 28 Such a suggestion is implicit in the article by James (n 22). For the contrary view, see, eg, Birks (n 24), 400: ‘Practitioners [in contrast to academic lawyers, including doctrinal jurists] could not sustain the constant flow of critical analysis which is essential to the well-being of our law, and could not hope to mediate that learning to each new generation of lawyers’ (my emphasis).

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themselves whether the latest legal developments are good or bad. As truly understood, doctrinal analysis embraces a creative form of reasoning.29 What I think is a valid criticism of many doctrinal scholars—although this is a charge that can be levelled at other types of academic lawyer as well—is that the methodology being applied is sometimes not thought through, let alone articulated. Very few history students would now study history without serious consideration of historiography. Yet we rarely find doctrinal scholars analysing the precise methodological approach that they are adopting. Speaking for myself, this message was again brought home to me in discussions with colleagues from other disciplines at All Souls. In presenting a seminar on a legal topic to them, I found it important to explain that my approach to law is to seek the best interpretation of the content of the law; and that the criteria I apply in determining whether one interpretation is better than another include fit, coherence, accessibility, practical workability and normative validity. One’s model should fit the vast bulk of the rules and principles (one cannot simply say that most of the rules and principles cannot be explained and must be ignored); it should do so in a way that is coherent or rational, by treating like cases alike and unlike cases differently; the interpretation should be as simple to understand—as accessible—as possible; the account of the law must be one that works in practice because law is pre-eminently a practical discipline; and the interpretation should be one that can be morally justified, even if that moral justification goes no deeper than relying on what are perceived to be widely shared moral values. Finally, it is noteworthy that, in civil law jurisdictions, private law—and doctrinal reasoning—continue to thrive. It is not entirely clear why there should be this contrast between civil and common law countries. Perhaps it is because of the sharp divisions in the courts (and codes), so that essentially private law disputes are decided by different courts from those deciding public law cases. Perhaps it is because there is no commercial Bar in the common-law sense, offering an intellectually satisfying and highly lucrative alternative to academia. Perhaps it is because of the tradition of dedicated chairs in private law subjects. Perhaps the existence of research institutes (eg the Max Planck Institutes) has been crucial. Perhaps it is because of the very high status of legal academics in all areas of law, including private law, in, for example, Germany, and the importance attached by German practitioners to law degrees and PhDs in law. Perhaps it is because there has been no realist onslaught (although that itself raises the question as to why not).30 Whatever the reasons, my call is for Anglo-Australian private lawyers to draw inspiration from the continental academic, private law tradition.

29 This is not to deny that it may be important to distinguish between what the law is and what it ought to be. So, eg, in my ongoing Restatement project discussed later in this chapter, the essential aim is to put forward as clearly and succinctly as possible the best interpretation of the present English law. Any discussion as to what the law ought to be is confined to the commentary. 30 For exploration of these sorts of issues, including reference to the German ‘Free Law Movement’ as inspiring the US Realist movement, see, eg, J Herget and S Wallace, ‘The German Free Law Movement as the Source of American Legal Realism’ (1987) 73 Virginia Law Review 398; K Grechenig and M Gelter, ‘The Transatlantic Divergence in Legal Thought: American Law and Economics v German Doctrinalism’ (2008) 31 Hastings International and Comparative Law Review 297. I am most grateful to Birke Haeker, Fellow of All Souls, for these references.

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Professor Kenneth Reid of Edinburgh University, at the end of his inaugural lecture, summed up the position beautifully, albeit that he was focusing primarily on the position in Scotland, in suggesting that we need to react against the feeling, which would be puzzling to lawyers in Continental Europe, that the energy has gone out of doctrinal scholarship, that there is nothing new to be discovered, and that the whole enterprise is, in some sense, hopelessly old-fashioned. In Scotland, at least, nothing could be further from the truth. To achieve a proper understanding of our law there is still so much to be done, so many areas to be investigated, so many sources to be trawled. To research private law is to live on the edge of perpetual discovery. That the work is exacting is a further cause of stimulus … Private law in Scotland will thrive for as long as private lawyers are able to communicate to others the excitement of the enterprise on which they are engaged.31

Pulling this together, therefore, I am suggesting that one important cure for the decline of private law is to reinforce the merits of doctrinal or practical legal reasoning. In this respect, it is of interest that, despite protests from some legal academics, the recent Research Excellence Framework (REF) assessment exercise included weight being placed on the practical impact of one’s research. Here doctrinal lawyers can score well in terms of influencing practitioners and judges. True it is that those involved with empirical research and seeking to influence policy-makers will also score highly on such a test. In contrast, one would imagine that the legal philosophers, and those advocating, or applying, a law and economics approach in the United Kingdom, would score less well. The close link to practitioners, especially commercial lawyers, should be seen as a positive strength for academic private law, rather than a weakness. Two main advantages may be said to flow from this close connection. First, collaboration on projects between practitioners, judges and academics is entirely feasible and is likely to prove beneficial to all involved. Secondly, as a sort of quid pro quo for the brain drain out of academic private law into commercial practice, practising commercial lawyers should be made to realise that they have an obligation to fund teaching and research into private law in the universities. This funding can take the form not only of named Chairs or lectureships in private law subjects, but also postgraduate private law scholarships. At Edinburgh University, for example, a bank of postgraduate scholarships in core subjects has been built up from the fees from short courses delivered by members of the law faculty for practitioners.32 As Professor Kenneth Reid commented to me, it is rather satisfying to think ‘that PhDs can be produced out of lectures on conveyancing.’33

31

Reid (n 13) 340. I am grateful to Professor Kenneth Reid for drawing this to my attention. In an e-mail dated 5 April 2015, he explained that, for some 15 years, the Edinburgh Legal Education Trust (of which he is a trustee) has been funding an annual PhD scholarship in private law and have since added a scholarship for an LLM by research. The resulting PhDs are published as books. The result has been to increase significantly the number of lecturers in Scottish universities with interests in private law, with the vast majority of those appointments being of former scholarship-holders. The Trust is funded entirely by lectures to the legal profession. 33 E-mail dated 5 April 2015. 32

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III. The Non-Accessibility of the Common Law: Restatements? I now move to my second, main challenge. I have already indicated that in the USA, the flag of high-quality doctrinal work on private law is being flown by the American Law Institute through the ALI Restatements of American law. These essentially respond to a challenge posed by the common law technique, which is its inaccessibility—a problem that is exacerbated in the USA because of the existence of different common law rules across the many jurisdictions that comprise the United States. Although the non-accessibility of the common law is not a problem confined to private law—one might equally well say that aspects of public law suffer from the same problem—non-accessibility is certainly a classic challenge for central areas of private law areas such as contract, tort, unjust enrichment, and property law. It had long seemed to me that, while not facing the multi-jurisdictional problems encountered in the USA, it was a lacuna in relation to English law that we have traditionally had no equivalent to the Restatements. There has been nothing between the case reports (or legislation) and the standard textbooks. In other words, it has long been my belief that there are real benefits to be gained in setting out what the law is in England and Wales in as clear and accessible a form as possible. Brilliant as the common law methodology is, its major disadvantage is its lack of accessibility, especially to those who are not trained as common lawyers. Allied to that is that, in certain areas, the structure and coherence of the common law may not be obvious, or may be lacking. Hence my present project to produce a number of Restatements of English law. A Restatement of the English Law of Unjust Enrichment was published by Oxford University Press in 2012 and, greatly encouraged by the welcome given to that book, both in the courts and by commentators,34 I have since moved on to restating contract in A Restatement of the English Law of Contract, which has recently been published, again by Oxford University Press.35 The word ‘Restatement’ might suggest that these projects are purely concerned to state the present law. That would be marginally misleading. What is being aimed for is the best interpretation of the present law. It is precisely because they are tied to the existing law in that sense that they are Restatements and not codes. When one is dealing, as I am, with a Restatement within a single jurisdiction, this notion of being tied to the existing law is relatively straightforward and requires that the Restatement is within the interpretative reach of the courts. The notion of being tied to the existing law is more complex where one has a multi-jurisdictional Restatement, as in the USA, or if one is trying to set out the law across Europe. But the essential point distinguishing a non-binding code from a Restatement, whether a single or multi-jurisdictional Restatement, is that with a code, unlike a Restatement, one can simply start with a blank sheet of paper, decide on what is the best legal rule, and then set that out in the code. One cannot do that with a Restatement. 34 See, for example, F Rose (2013) 129 LQR 639, J Lee (2013) Restitution Law Review 228, and the review article by K Barker, ‘Centripetal Force: The Law of Unjust Enrichment Restated in England and Wales’ (2014) 34 OJLS 155. The Restatement has also been cited in most of the leading English cases on unjust enrichment since it was published (including in the Supreme Court in Benedetti v Sawiris [2013] UKSC 50, [2014] AC 938 and Crown Prosecution Service v Eastenders Group [2014] UKSC 26, [2015] AC 1 and, in the Court of Appeal, in Relfo Ltd v Varsani [2014] EWCA Civ 360 in which, at [74], Arden LJ described it as ‘this valuable work’). 35 A Burrows, A Restatement of the English Law of Contract (Oxford, Oxford University Press, 2016).

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The working methods we have been using for the Restatements of English law are also somewhat novel. The working methods of the American Law Institute, which was founded in 1923, are probably well-known. The Institute comprises practitioners, judges and academics, and has a large membership of up to 4000 and a Council of up to 65. For each Restatement, a Reporter, or Reporters, are appointed who have responsibility for the drafting of the Restatement, assisted by an advisory committee and a larger consultative group. The drafts of the different parts of the Restatements are drawn up in the form of Preliminary Drafts which must be approved by the advisory committee and consultative group, and the final version must be approved by a meeting of the members as a whole. The numbers of people involved and the potential input is therefore very large and, given also the approval required, the projects take many years to complete. So, for example, the Third Restatement of Restitution and Unjust Enrichment,36 published in 2011, took some 13 years to complete. Although the large numbers involved, and the long gestation period, have some advantages, there are also obvious disadvantages and, for the English Law Restatements, I have opted for a comparatively short and streamlined approach. Having said that, I thought it essential that that this would not just be the work of academics and I therefore put together, for each of the two Restatements so far undertaken, a small advisory group of about 20 experts, half of whom were academics and half of whom were judges, or practitioners. In addition to the Restatement being a novelty in England and Wales, the idea of academics, judges and practitioners coming together to work on a legal project was also a novelty. So, to take the Contract Restatement, work started in October 2013. Four five-hour meetings of the advisory group were held. In advance of those meetings, drafts of parts of the Restatement and the commentary were prepared and circulated electronically. Comments were then sent back and revised versions of the Restatement and commentary were again sent out in advance of each meeting. Those drafts were then discussed at the meetings. They were further revised in the light of the discussions. The Restatement and the commentary seek to reflect the insights gained from the written comments and the discussions in the meetings and the invaluable advice of former Parliamentary Counsel. This form of collaboration appears to have worked extremely well and I, for one, certainly learned a great deal from my colleagues on the group. It bears out my earlier argument that collaboration between doctrinal academic lawyers and practitioners should be seen as both feasible and fruitful. Lest there be any doubt on this, it is not intended that the Restatements should be enacted as legislation. On the contrary, the intention is for the Restatements to be a persuasive authority, but non-binding; and it is envisaged that there may be periodic revisions of the Restatements to reflect new developments and thinking. The essential idea is for the Restatements to supplement and enhance our understanding of the English common law— to make it more accessible—not to replace it. In restating English law, I have drawn inspiration not only from the ALI Restatements but also from the European Draft Common Frame of Reference,37 and, in the context of contract,

36 ALI Restatement of the Law (Third) Restitution and Unjust Enrichment (St Paul MN, American Law Institute Publishers, 2011). 37 (2009). Prepared by the Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group).

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the Unidroit Principles of International Commercial Contracts,38 the Principles of European Contract Law,39 and the earlier Contract Code drawn up by Harvey McGregor.40 The work on European harmonisation inevitably raises the question as to the value of a Restatement of English law. My view is that, whether one believes in European legal harmonisation or not, it is essential that the subtleties of English law are properly understood and appreciated before there is a consideration of whether they should be abandoned. Many English lawyers would also argue that, for example, English contract law has a particularly prominent and distinctive global role (evidenced by the popularity of English ‘choice of law’ clauses even in contracts between foreign parties) that should not be lightly given up. Finally, I would like to focus on four more specific issues that arose in relation to the recently completed contract project. Bringing these to your attention may, I hope, serve to make clear the challenge that this type of project presents and may help to convince the sceptics that the work is neither mindless nor dull but is, in fact, complex and exciting.41 First, English contract law is in many areas very detailed. Almost inevitably, therefore, one has to draw a distinction between the ‘general law’ of contract and the law on specific contracts. The Restatement is concerned with the former and not the latter. So it is concerned with the general law of contract, both common law and legislation, and not the law that applies to particular types of contract (eg employment contracts, contracts for the sale of goods, contracts for the carriage of goods, construction contracts, insurance contracts, consumer credit agreements, arbitration agreements) unless reference to the special rules assists in describing (or avoids a misleading description of) the general law, an obvious example being the terms implied by legislation into a contract for the sale of goods. That type of division is reflected, for example, in the division between Volumes 1 and 2 of Chitty on Contracts,42 the first being called General Principles and the second Specific Contracts (although it should be noted that, for the first time, the new 32nd edition of Chitty pushes into Volume 2 in a new chapter on ‘consumer contracts’ the law on, for example, unfair terms in consumer contracts, which is treated in the Contract Restatement as part of the general law). The important point to acknowledge is that the drawing of that division between the general law of contract and the rest is not entirely straightforward. Secondly, and closely connected with that first point, there is more legislation in the law of contract than in the law of unjust enrichment and plainly some of that legislation has to be regarded as part of the general law of contract. Deciding which legislation falls within the general law of contract—and how to present the essence of that legislation alongside the common law without losing overall coherence and accuracy—has been daunting. So there

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3rd edn (Rome, Unidroit, 2010). Unidroit is the International Institute for the Unification of Private Law. O Lando and H Beale (eds), Principles of European Contract Law (The Hague, Kluwer, 2000). This was the work of the Commission on European Contract Law. 40 This was drawn up for the English Law Commission and was intended to embrace English and Scottish law. The final 1972 draft was published in 1993 in Italy at the instigation of Giuseppe Gandolfi (Milano, Giuffre Editore, 1993). 41 I accept that there are constraints in producing a Restatement that do not apply to other forms of doctrinal writing. But even in a Restatement, in which most of the creative energy is spent in seeking to produce the best interpretation of the present law, there is room for criticism of the present law through the commentary. See also n 25 above. 42 H Beale (ed), Chitty on Contracts, 32nd edn (London, Sweet & Maxwell, 2015). 39

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are references to legislation at various points in the Contract Restatement (for example, the Unfair Contract Terms Act 1977, the Consumer Rights Act 2015, the Limitation Act 1980, the Consumer Protection from Unfair Trading Regulations 2008, and the Contracts (Rights of Third Parties) Act 1999). However, most of the general law of contract is common law, so that most of the Contract Restatement is concerned with the common law. Indeed, if that were not the case and the general law of contract was mainly contained in legislation, one might regard a Restatement as an inappropriate instrument. It follows that, as with A Restatement of the English Law of Unjust Enrichment, the principal intellectual challenge has been in trying to restate complex judge-made law in as succinct and consistent a way as possible. Thirdly, the long pedigree of the English law of contract, in contrast to the recently developed English law of unjust enrichment, has meant that the distinction between what the law is, and views as to what it ought to be, can be drawn more sharply in the Contract project than in the Unjust Enrichment project. Put another way, there has been less ‘room for manoeuvre’ in restating the English law of contract than in restating the English law of unjust enrichment. So, for example, despite criticisms sometimes made, one will not be surprised to hear that the following were regarded as aspects of the best interpretation of English law: the doctrine of consideration is a fundamental feature of the English law of contract; past consideration is not good consideration; part payment of a debt is not good consideration for the creditor’s promise to forgo the balance; the subsequent conduct of the parties cannot be taken into account in interpreting a contract; the exceptions to the approach to the award of an agreed sum in White and Carter (Councils) Ltd v McGregor43 are rare; specific performance is a secondary, not a primary, remedy; there is a constant supervision bar to specific performance; and there is no doctrine of mistake (not induced by misrepresentation) rendering a contract voidable rather than void. This is not to deny that the Contract Restatement has adopted, as the best interpretation of the law, some positions that may be regarded as controversial. These include that: one cannot accept in ignorance of an offer, but the acceptance need not have been induced, or influenced, by the offer; acceptance in a unilateral contract is generally constituted by the promisee starting to perform; the promise to perform, or the performance of, a pre-existing duty is good consideration for a counter-promise of more money; there are three possible explanations for ‘Wrotham Park damages’; there is a doctrine of unilateral and common mistake that renders a contract void; and there is a judge-made doctrine covering exploitation of weakness. Fourthly, in respect of two major issues of topical dispute in English contract law, it was decided, after considerable debate within the Advisory Group, that the text of the Contract Restatement should ‘sit on the fence’, leaving it for the commentary to bring out the different approaches that one finds in the present law. Those two issues are: first, whether Lord Hoffmann was correct in obiter dicta in Chartbrook Ltd v Persimmon Homes Ltd44 to regard the continuing common intention needed for rectification as objective, rather than subjective; and, secondly, what the correct approach should be to the defence of illegality which

43 44

White and Carter (Councils) Ltd v McGregor [1962] AC 413. Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101.

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has been considered, without clear consistency, in no fewer than three recent cases in the Supreme Court.45 Of course, it remains to be seen whether lawyers—and the principal intended readership is lawyers, whether academics, students, practitioners or judges, and including civil lawyers—will find the Contract Restatement to be helpful and interesting.

IV. Conclusion After touching on judicial activism and legislation, this chapter has considered two, major challenges for private law in the twenty-first century. A first is how best to keep private law alive and thriving in the universities. A central suggestion I have made is that the merits of rigorous doctrinal analytical research on case law and legislation should be re-emphasised. A second challenge is the non-accessibility of the common law, and here I have discussed my ongoing Restatement of English Law project. It may not have escaped your attention that my core answers to those two challenges can be regarded as cohering, in the sense that one way of reviving private law is precisely to undertake in one’s own jurisdiction the doctrinal and practical legal reasoning involved in a Restatement project.

45 Hounga v Allen [2014] UKSC 47, [2014] 1 WLR 2889; Les Laboratoires Servier v Apotex Inc [2014] UKSC 55, [2015] AC 430; Jetivia SA v Bilta (UK) Ltd [2015] UKSC 23, [2015] 2 WLR 1168. But see, subsequent to the publication of A Restatement of the English Law of Contract, the decision of the Supreme Court in Patel v Mirza [2016] UKSC 42, [2016] 3 WLR 399.

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3 Rationalising Tort Law for the Twenty-First Century KEN OLIPHANT

I. Introduction Here’s a radical idea: let’s rationalise the law of tort so that it’s intelligible to ordinary people. Doesn’t sound very radical, does it? Maybe not, but two recent episodes have made me think it should be a priority in developing tort law in the twenty-first century. The first was this. In May 2012, anniversary celebrations in Paisley, Scotland, marked the 80th birthday of the House of Lords’ decision in Donoghue v Stevenson.1 I was at that time Director of the Institute for European Tort Law in Vienna, and gave a lecture offering some comparative observations on the great case from the standpoint of the codified civil law tradition of continental Europe. My title was: ‘Let’s codify the neighbour principle’. Though the conference proceedings were subsequently published in a special issue of the Scottish legal periodical, the Juridical Review,2 you will look in vain there for my own paper. I have to confess that I simply failed to produce a concise, declaratory version of the neighbour principle, or any of the more modern tests for the existence of a duty of care, that made any sense at all while remaining faithful to the existing case law. All the exercise accomplished was to persuade me that the common law’s whole approach to the duty of care concept is so completely incoherent that it precludes any effort to communicate or discuss its nature and role in intelligible terms. I believe that this is emblematic of a wider intelligibility problem in the law of tort. My other main impulse was a curious feature of some of the legislation that has addressed the English common law of tort in recent years.3 Successive statutes—and here I particularly have in mind section 1 of the Compensation Act 2006 and the Social Action, Responsibility and Heroism (SARAH) Act of 2015—explicitly purported to do no more than restate particular aspects of the existing common law because it was felt that public misconceptions

1

Donoghue v Stevenson [1932] AC 562 (HL). J Thompson (ed), Juridical Review. Donoghue v Stevenson: The Paisley Papers (Edinburgh, W Green, 2013). 3 For a broader survey of tort law legislation, see TT Arvind and J Steele (eds), Tort Law and the Legislature (Oxford, Hart Publishing, 2013). 2

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about what the law required were having a detrimental effect on how people conducted themselves.4 The predominant attitude to the reforms of English tort lawyers has been that they are pretty much an irrelevance,5 but it seems to me that they are more significant than is generally admitted, though probably not in a way intended by their proponents. To me, the main significance of these ‘micro-restatements’ is to highlight the unintelligibility to most ordinary people of even the simplest component parts of our law of tortious liability, and our utter failure as tort lawyers to communicate the basics of tort law to the wider community and to engage in public debate about its future. There are doubtless numerous reasons why we have failed so badly, one being a prevalent attitude, at least amongst academic tort lawyers, that what Parliament does is out of our hands, and not our concern, and that our focus should be the ‘immanent rationality’6 of the common law.7 But the factor I wish to highlight here—arguably, the most important factor—is that the subject matter of tort is simply incoherent on multiple levels. If we, as members of the legal community, are to communicate the content of tort law in terms intelligible to the wider public, to engage in debates about its merits and, where appropriate, to lead the way in shaping its future development, we need first to take steps to rationalise what remains a ramshackle, undersystematised corpus of law. To that end, I here present three tentative proposals, which I hope will set us in the right direction.

II. Three Proposals to Rationalise the Law of Tort To anyone who doubts that tort law is an incoherent mess, ask yourself the following elementary questions: How many torts are there? Do we really need so many? Is the real focus of tort law on rights, wrongs, duties or simply compensation for loss? If the answer is ‘all of the above’, can tort law actually play these different roles concurrently without self- contradiction? Conversely, is it coherent to see tort law as ‘just’ concerned with rights, or just with duties, and are its duties in fact ‘real’ duties at all? Some of these questions (eg, do

4 As to the Compensation Act 2016 s 1, see M Lunney and K Oliphant, Tort Law: Text and Materials, 5th edn (Oxford, Oxford University Press, 2013) 172 et seq; as to the SARAH Act, see K Oliphant, ‘Notes on SARAH: The Social Action, Responsibility and Heroism Act 2015’ (Tort Law, 11 May 2015) available at www.facebook.com/ lawoftort/posts/10152959370596509. 5 So far as I know, the only academic article on s 1 of the Compensation Act 2006 to have been published at the time was K Williams, ‘Politics, the Media and Refining the Notion of Fault: Section 1 of the Compensation Act 2006’ [2006] Journal of Personal Injury Law 347. Even in Arvind and Steele (n 3), the provision is given only brief attention in just two places (pp 66 and 251). As regards the SARAH Act, a Westlaw search on 1 May 2016 revealed only one short academic comment on the reform: A Okoye, ‘The UK Social Action, Responsibility and Heroism (SARAH) Act 2015 and Corporate Social Responsibility (CSR): Potential Connections’ (2015) 26 International Company and Commercial Law Review 373. 6 E Weinrib, ‘Legal Formalism: On the Immanent Rationality of Law’ (1988) 97 Yale Law Journal 949 (propounding an account of law as elaborated from within rather than exported from outside by way of the legislative process). 7 For criticism of this attitude, see P Cane, ‘Taking Disagreement Seriously: Courts, Legislatures and the Reform of Tort Law’ (2005) 25 OJLS 393 (arguing that we should prefer statute to common law because pluralistic political processes provide a superior mechanism for resolving disagreement as to values and the functions and effects of law). See also J Goudkamp and J Murphy, ‘Tort Statutes and Tort Theories’ (2015) 131 LQR 133.

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we need so many torts?) have been almost completely neglected in the tort law literature; others (eg, what is tort’s real focus?) have sparked intense debate, though opinions on them remain defiantly polarised.8 It is therefore with a certain trepidation that I venture some simple thoughts as to how they might most convincingly be answered, in setting out a rather personal selection of issues that I believe need to be addressed if tort law really is to be intelligibly communicated to those subject to its rules: the public generally.

A. Rationalising the Bases of Tortious Liability (Do We Need 70+ Torts?) As I have noted before,9 a first step would be to rationalise the number of distinct liabilities we recognise in the law of tort. Bernard Rudden famously listed some 70 different torts that are recognised in one or other common law jurisdictions, but made no pretence of completeness and accepted that some of the liabilities listed could legitimately be broken down into further, more narrowly defined sub-torts.10 Since he wrote, a number of additional torts might plausibly be added to the list—for example, harassment,11 interference with reproductive autonomy,12 infringement of EU competition law,13 and governmental violation of EU law.14 Is this profusion of causes of action really necessary, or could Occam’s razor15 usefully be applied to some causes of action, which, on closer analysis, turn out to be superfluous? Our Continental neighbours certainly make do with far fewer tortious liabilities. France provides perhaps the most extreme—as well as the most celebrated—example, dealing with substantially the whole of its law of responsabilité extra-contractuelle in just five articles of the Code Civil, beginning with the general liability for fault in article 1382. The following articles clarify the meaning of this general clause (article 1383) and add to it a set of strict liabilities (as they are now seen to be)16 in respect of persons and things (article 1384), animals (article 1385) and the collapse of buildings (article 1386). The German Civil Code (Bürgerliches Gesetzbuch, BGB) is not quite so concise: the 31 paragraphs it devotes to

8 Seeing tort as focused on rights: R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007). Seeing tort as focused on wrongs within a framework of corrective justice: E Weinrib, The Idea of Private Law (Cambridge MA, Harvard University Press, 1995); A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing 2007). Seeing tort as focused on duties: P Birks, ‘The Concept of a Civil Wrong’ in D Owen (ed), Philosophical Foundations of Tort Law (Oxford, Clarendon Press 1995). This is only a small selection from the literature. 9 K Oliphant, ‘European Tort Law: A Primer for the Common Lawyer’ (2009) 62 Current Legal Problems 440, 470. 10 B Rudden, ‘Torticles’ (1991–1992) 6/7 Tulane Civil Law Forum 105. 11 Protection from Harassment Act 1997. 12 cf Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2004] 1 AC 309; N Priaulx, ‘Joy to the World! A (Healthy) Child is Born! Reconceptualizing “Harm” in Wrongful Conception’ (2004) 13 Social and Legal Studies 5. 13 Case C-453/99 Courage v Crehan [2001] ECR I-6297; Crehan v Inntrepreneur Pub Co [2006] UKHL 38, [2007] 1 AC 333. 14 Case C-6/90 Francovich v Italy [1991] ECR I-5357; R v Secretary of State for Transport, ex p Factortame Ltd (No 5) [2000] 1 AC 524. 15 cf K Barker, ‘Wielding Occam’s Razor: Pruning Strategies for Economic Loss’ (2006) 26 OJLS 289; J Stapleton, ‘Occam’s Razor Reveals an Orthodox Basis for Chester v Afshar’ (2006) 122 LQR 426. 16 cf E Tomlinson, ‘Tort Liability in France for the Act of Things: A Study of Judicial Lawmaking’ (1988) 48 Louisiana Law Review 1299.

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torts (unerlaubte Handlung)17 contain three liabilities of general scope, sometimes termed its three ‘mini general clauses’.18 These consist in a general liability for fault, restricted to unlawful violation of specific interests (§ 823 I BGB), a liability for breach of statutory duty (§ 823 II BGB), and a liability for intentional damage contrary to public policy (§ 826 BGB). In addition, there is a miscellaneous set of more specific liabilities, numbering perhaps five in all, depending on how one counts them.19 That gives us an overall total of eight distinct causes of action—still considerably fewer than the common law’s 70 plus. This superabundance of liabilities has been a recipe for confusion. There is all too often a lack of any clear rationale for differences between overlapping causes of action,20 while apparently common concepts are given different meanings even in torts that are closely connected, as recently highlighted with regard to the concept of ‘unlawful means’ in the economic torts.21 No distinction in the causes of action is to be left without legal consequence, or so it seems. It has been remarked that the economic torts have ‘lacked their Atkin’22—adverting to Lord Atkin’s leading role in providing the re-conceptualisation of negligence to fit it for purpose in the twentieth century. As the task is not the sole preserve of judges but falls to academics too, one might add that the economic torts—indeed the law of torts as a whole—have also yet to find their Peter Birks.23 I do not purport in this chapter to provide a comprehensive revision of the distinct bases of tortious liability, indicating which torts to keep and which to abolish. Before one gets to that stage, one must first identify the criteria to be applied. So I content myself here with merely proposing a simple methodological first step and briefly illustrating how it might

17 As to the different German terms that may be translated as ‘tort’, and how none of them is an exact equivalent, see H Koziol, ‘Schadenersatzrecht and the Law of Tort: Different Terms and Different Ways of Thinking’ (2014) 5 Journal of European Tort Law 257. 18 Following Claus-Wilhelm Canaris, ‘Schutzgesetze —Verkehrspflichten—Schutzpflichten’, in Claus-Wilhelm Canaris and U Diederichsen (eds), Festschrift für Karl Larenz zum 80. Geburtstag (Munich, Beck Publishing, 1983) 35 (drei kleinen Generalklauseln). See further C van Dam, European Tort Law, 2nd edn (Oxford, Oxford University Press, 2013) para 402-1 (‘three general provisions’). cf B Markesinis and H Unberath, The German Law of Torts: A Comparative Treatise, 4th edn (Oxford, Hart Publishing, 2002) 69 (using the term ‘mini-general clause’ specifically in respect of § 823 I). 19 I have included in my count the liabilities for endangering credit (§ 824 BGB) and inducing others to sexual acts (§ 825 BGB), the liability of keepers and minders of animals (§ 833 f), liability for the collapse of buildings and the breaking off of building parts (§ 836 ff) and the liability of public officials for breach of duty (§ 839, supplemented by § 839a in respect of court-appointed experts). I have not included the provisions on liability for agents (§ 831) or the liability of persons with a duty of supervision (§ 832) as these are just liabilities for unlawful damage with a reversed burden of proof. Other provisions in the same chapter deal with such issues as the exclusion of liability, the responsibility of minors, joint tortfeasors and damages. 20 See, eg, Lord Rodger, Foreword in E Descheemaeker, The Division of Wrongs: A Historical Comparative Study (Oxford, Oxford University Press, 2009), referring to the conflict between principles of negligence and principles of defamation highlighted in Spring v Guardian Assurance plc [1995] 2 AC 296 (HL). 21 Compare OBG v Allan [2007] UKHL 21, [2008] 1 AC 1 (causing loss by unlawful means) with Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19, [2008] 1 AC 1174 (unlawful means conspiracy). The former decided that a crime giving rise to no civil liability was not ‘unlawful means’ for the general tort of causing loss by unlawful means; the latter declined to adopt the same rule for the tort of unlawful means conspiracy, accepting that a crime giving rise to no civil liability could indeed constitute ‘unlawful means’ in the law of conspiracy. 22 Lord Wedderburn of Charlton, ‘Rocking the Torts’ (1983) 46 MLR 224, 229. 23 Having in mind Birks’ enormous contribution to the systematisation of the English law of restitution, especially in P Birks, An Introduction to the Law of Restitution (Oxford, Clarendon Press, 1985). For Birks’ own account of the concept of tort, see Birks (n 8).

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be applied. I would begin by asking: what tortious liabilities do we really need beyond negligence? Negligence’s expansion and displacement of other torts in practice has not always been greeted with approbation.24 But it is recognised even by its critics that it now provides a cause of action in many situations where liability was already recognised under some other tort.25 This raises the ulterior question of whether these overlapping causes of action should be perpetuated. The answer depends on whether there is any good reason for allowing an alternative claim because reliance solely upon negligence—the common law’s ‘general clause’—would be inadequate. Let me suggest a few possibilities. To begin: one reason for having a set of torts additional to the tort of negligence is to allow for strict liability in those contexts in which such liability is considered desirable. A distinct legal basis must be provided for the liability as, by definition, there is no cause of action in negligence in the absence of (legal) fault.26 So, even a rationalised law of tort would retain the strict liabilities that are currently recognised, though it would undoubtedly be desirable to develop a more coordinated approach to them and to remove anomalies—in England, strict liability arises mostly under statute27 and takes a variety of different forms that have mostly escaped scholarly attempts at theorisation,28 while the common law strict liability rule of Rylands v Fletcher29 has been deprived of its practical significance through restrictive judicial interpretation of its scope30 and should either be unfettered or abolished,31 not left in its current legal limbo.32 A second reason for allowing tortious liability beyond the scope of the tort of negligence is that, as the law recognises (at least implicitly) a hierarchy of protected interests, it may be that certain interests are protected only against intentional, and not merely negligent interference. This is generally true, in particular, of purely economic interests and the interest in mental health. As regards the former, Lord Oliver once remarked that ‘[t]he infliction of physical injury to the person or property of another universally requires to be justified. The causing of economic loss does not’.33 But where the (pure) economic loss is caused intentionally, there is not the same reluctance to grant an entitlement to compensation, and

24 See especially T Weir, ‘The Staggering March of Negligence’ in P Cane and J Stapleton (eds), The Law of Obligations: Essays in Honour of John Fleming (Oxford, Oxford University Press, 1998). 25 See, eg, Stevens (n 8) 292–95, criticising ‘[t]he overlaps created by having one über-tort of negligence cutting across the rest’ (295). 26 cf T Honoré, Responsibility and Fault (Oxford, Hart Publishing, 1999) ch 4 (‘The Morality of Tort Law: Questions and Answers’). 27 See, eg, Gas Act 1965 s 14 (underground gas storage); Nuclear Installations Act 1965 ss 7–10, 12 (nuclear matter and ionising radiations); Civil Aviation Act 1982 s 76(2) (things falling from aircraft); Environmental Protection Act 1990 s 73(6) (deposits of waste); Consumer Protection Act 1987 Pt 1 (defective products); Water Industry Act 1991 s 209 (escapes of water); Merchant Shipping Act 1995 s 152 et seq (oil pollution). 28 cf K Stanton, ‘New Forms of the Tort of Breach of Statutory Duty’ (2004) 120 LQR 324, 332 (noting the lack of a common theory underpinning the strict liabilities arising under statute). See further K Stanton et al, Statutory Torts (London, Sweet & Maxwell, 2003). 29 Rylands v Fletcher (1868) LR 3 HL 330. 30 See especially Transco plc v Stockport Metropolitan Borough Council [2003] UKHL 61, [2004] 2 AC 1. 31 As in Australian law, where the liability is now seen as derived from a non-delegable duty: Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 (HCA). 32 See further J Murphy, ‘The Merits of Rylands v Fletcher’ (2004) 24 OJLS 643 (favouring retention without the current restriction to interference with rights over land); D Nolan, ‘The Distinctiveness of Rylands v Fletcher’ (2005) 121 LQR 421 (favouring abolition). 33 Murphy v Brentwood District Council [1991] 1 AC 398 (HL) 487.

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liability can be established even where it could not possibly arise in negligence, for example under the tort of causing loss by unlawful means34 or the tort of procuring a breach of contract.35 Something similar applies in respect of mental injury: in negligence, the liability is limited to recognised psychiatric harm suffered in certain proximate relationships,36 but where the defendant intends to cause serious or significant distress, liability can arise independently of such relationship under the rule in Wilkinson v Downton,37 possibly extending to severe distress unaccompanied by psychiatric illness.38 Conversely—providing a third reason for recognising causes of action supplementary to negligence—it may be considered desirable for the protection the law accords to specific interests to extend to immaterial harm that falls outside negligence’s scope, so as to allow for compensation in the absence of physical injury or damage, even though the interference is unintentional. Here one might mention the tort of private nuisance, providing for compensation for interference with the use and enjoyment of land even in the absence of physical harm, to reflect the reduction in the value of the land affected,39 the tort of defamation (compensation for damage to reputation, vindication of good name, and distress, hurt and humiliation),40 and the torts of trespass to the person, allowing compensation for the upset and distress associated with unlawful touchings of the body (battery)41 and the deprivation of liberty (false imprisonment).42 The last reason I shall suggest here for providing a separate head of claim for some of the liabilities just mentioned is that they require a specific balancing of countervailing rights and interests which cannot be accomplished so transparently or so effectively through the inquiry into breach of duty in the tort of negligence. Two examples may be given. First, in resolving disputes between neighbouring landowners, it is insufficient to ask whether the one took reasonable care in using the land so as to avoid or reduce the risk of interfering with the other’s use and enjoyment of the land affected.43 Instead, the law of private

34

OBG (n 21). Lumley v Gye (1853) 2 El & Bl 216, 118 ER 749. Strictly speaking, the requisite intention is the intention to procure the breach of contract, rather than to cause economic loss (OBG (n 21) [8] (Lord Hoffmann)) though the two often go hand in hand. Still, the tort in Lumley v Gye is nevertheless an intentional tort, not one of negligence. 36 As to primary victims, see Page v Smith [1996] 1 AC 155 (HL); as to secondary victims, see Alcock v Chief Constable of the South Yorkshire Police [1992] 1 AC 310 (HL). 37 Wilkinson v Downton [1897] 2 QB 57, as interpreted in O (A Child) v Rhodes [2015] UKSC 32, [2016] AC 219. 38 As suggested in Wainwright v Home Office [2003] UKHL 53, [2004] 2 AC 406 [44]–[46] (Lord Hoffmann); O (A Child) (n 37) [116]–[119] (Lord Neuberger). 39 Hunter v Canary Wharf Ltd [1997] AC 655 (HL); D Nolan, ‘Nuisance’ in K Oliphant (ed), The Law of Tort, 3rd edn (London, LexisNexis Butterworths 2015) para 22.103. 40 John v MGN Ltd [1997] QB 586, 607 (Sir Thomas Bingham MR). See generally A Kenyon, ‘Problems with Defamation Damages’ (1998) 24 Monash University Law Review 70. 41 Richardson v Howie [2005] PIQR Q48 (awards for injury to feelings are compensatory and not aggravated damages). 42 Murray v Ministry of Defence [1988] 1 WLR 692 (HL), 703 (Lord Griffiths) (‘The law attaches supreme importance to the liberty of the individual and if he suffers a wrongful interference with that liberty it should remain actionable even without proof of special damage’). 43 Rapier v London Tramways [1893] 2 Ch 588, 599–600 (Lindley LJ) (‘At common law, if I am sued for a nuisance, and the nuisance is proved, it is no defence on my part to say, and to prove, that I have taken all r easonable care to prevent it’); Cambridge Water Co Ltd v Eastern Counties Leather plc [1994] 2 AC 264 (HL), 299 (Lord Goff) (‘if the user is not reasonable, the defendant will be liable, even though he may have exercised reasonable care and skill to avoid it’). 35

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nuisance highlights a set of specific circumstances that together determine whether the interference is lawful or unlawful, including the degree and duration of the interference,44 the character of the locality in which it occurs,45 whether the claimant was unusually sensitive to the interference,46 and whether the defendant was careless or malicious in causing the interference.47 Specific rules address such commonly occurring scenarios as where the defendant has planning permission to pursue the activity in question,48 where the defendant obstructs the claimant’s light49 or ventilation,50 or removes support to the claimant’s land,51 and where the claimant ‘comes to the nuisance’.52 These rules give the law clarity and predictability in its application to ongoing relationships, which would be impossible to achieve through the vague standard of reasonable care in negligence. Second, the law of defamation must perform the difficult task of balancing rights to reputation with the countervailing public interest in freedom of expression. It does so in particular53 by recognising a set of defences—absolute privilege,54 qualified privilege,55 honest opinion56 and publication on matter of public interest57—that allow persons to speak freely about others in particular contexts and in particular ways without the ‘chilling effect’58 of being judged against the vague standard of reasonable care if they cannot demonstrate the truth of their statements.59 The same concern to ensure clarity and predictability about the scope for freedom of expression also applies in other torts, as recently underlined in respect of liability under Wilkinson v Downton.60

44 Colls v Home and Colonial Stores Ltd [1904] AC 179 (HL), 184 (Earl of Halsbury LC) (a question of degree); Halsey v Esso Petroleum Co Ltd [1961] 1 WLR 683 (intensity and frequency of smell making it an actionable nuisance). 45 Sturges v Bridgman (1879) 11 Ch D 852; Lawrence v Fen Tigers Ltd [2014] UKSC 13, [2014] AC 822. 46 Robinson v Kilvert (1889) 41 Ch D 88. But cf Network Rail Infrastructure Ltd v CJ Morris [2004] EWCA Civ 172, [2004] Env LR 861. 47 Harrison v Southwark and Vauxhall Water Co [1891] 2 Ch 409 (carelessly conducted demolition works); Christie v Davey [1893] 1 Ch 316 (maliciously making noise). 48 Lawrence (n 45). 49 Colls (n 44). 50 Chastey v Ackland [1895] 2 Ch 389 (no right to general current of air). The parties settled in the course of the House of Lords’ hearing of the claimant’s appeal, during which several Law Lords expressed dissent from the Court of Appeal’s reasoning and decision: [1897] AC 155. See further I Dawson and A Dunn, ‘Negative Easements—a Crumb of Analysis’ (1998) 18 Legal Studies 510, 518–20. 51 Backhouse v Bonomi (1861) 9 HL Cas 503; cf Dalton v Henry Angus & Co (1881) 6 App Cas 740 (right to support of building acquired by easement). 52 Bliss v Hall (1838) 4 Bing NC 183; Lawrence (n 45) [51] et seq (Lord Neuberger). A different approach might be warranted if the claimant has changed the use of the property affected after the commencement of the defendant’s activity: ibid [53]. 53 But also through the recently adopted statutory requirement that publication has caused or is likely to cause serious harm to the claimant’s reputation: Defamation Act 2013 s 1(1). 54 eg under the Bill of Rights 1689 art 9 (‘That the Freedome of Speech and Debates or Proceedings in Parlyament ought not to be impeached or questioned in any Court or Place out of Parlyament’); Parliamentary Papers Act 1840 s 1 (reports, etc, ordered to be published by Parliament); Westcott v Westcott [2008] EWCA Civ 818, [2009] QB 407 (witness immunity). 55 Adam v Ward [1917] AC 309 (reciprocal duty or interest); Defamation Act 1996 s 15 (specified reports); Defamation Act 2013 s 6 (peer-reviewed statements in scientific or academic journals etc). 56 Defamation Act 2013 s 3. 57 ibid s 4. 58 See especially Ministry of Justice, Draft Defamation Bill Consultation (Cm 8020, 2011) para 8 et seq. 59 Truth is, of course, an independent defence to liability in defamation: Defamation Act 2013 s 2. 60 Wilkinson (n 37), considered by Lord Neuberger in O (A Child) (n 37) [104].

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On one level, a rationalisation of tort law along the lines suggested would not be radical at all, as one would be left with the familiar structure of liability for negligence, liability for intentional injury and strict liability,61 supplemented with a miscellaneous set of liabilities arising in specific contexts and/or addressing specific interests. However, asking the simple question ‘what tortious liabilities do we really need beyond negligence?’ has radical potential as a first step towards excising those torts that no longer serve a useful purpose and then—as a future second step—the re-categorisation of what remains in simpler, more rational terms.

B. Separating the Functions of Compensating Loss and Protecting Rights The alert reader may have noted that I did not include the vindication or protection of rights amongst the illustrative reasons I gave for recognising tortious liability outside the tort of negligence. That is because I think that to do so should not be the task of tort law at all—at least, insofar as one is speaking of direct rather than indirect vindication, in the sense I shall specify shortly. Robert Stevens’ now well-known thesis62 is that, in the common law, the law of tort(s) is best conceived as ‘concerned with the secondary obligations generated by the infringement of primary rights’,63 and this conception is fundamentally different from, and preferable to, the rival conception of tort law as concerned primarily with liability for the infliction of loss (which he takes to be probably the dominant conception in the common law today, as well as that embodied in French tort law).64 In my opinion, it is too crude to characterise entire legal systems exclusively in terms of loss-compensation or rights-protection, and the perceived contrasts often reflect nothing more than differences in the definitions of primary rights or the scope of their protection, rather than an underlying difference in conception. In formal terms, liability under any system of tort law is a secondary legal relation arising out of the violation of a primary (claim) right65—whatever the scope of the primary

61 This tripartite structure can be traced back to Anon [identified as Oliver Wendell Holmes], ‘The Theory of Torts’ (1873) 7 American Law Review 652. 62 Stevens (n 8). 63 ibid 2. 64 ibid 1–3 and 342–45. 65 Adopting the analysis of W Hohfeld, ‘Some Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1913) 23 Yale Law Journal 16; ‘Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1917) 26 Yale Law Journal 710. In fact, Hohfeld treated the commission of a tort as giving rise to a new right or claim in favour of the injured party, corresponding to a duty on the tortfeasor to pay damages (see (1917) 26 Yale Law Journal 710, 752 et seq). But it is more accurate to see the ‘right of action’ as a power to require the defendant to pay damages through the coercive machinery of the state: B Zipursky, ‘Rights, Wrongs, and Recourse in the Law of Torts’ (1998) 51 Vanderbilt Law Review 1, 80 et seq; ‘Civil Recourse, not Corrective Justice’ (2003) 91 Georgia Law Journal 695, 720 et seq. After all, it is hard to see how the defendant has a duty to pay damages at least until the claimant brings an action, and arguably until the action is resolved in the claimant’s favour. Henry M Hart and Albert M Sacks, The Legal Process (tentative edn, 1958) 154 also see the right of action as a power: ‘A right of action is a species of power—of remedial power. It is a capacity to invoke the judgment of a tribunal of authoritative application upon a disputed question about the application of preexisting arrangements and to secure, if the claim proves to be well-founded, an appropriate official remedy.’ The authors seem reluctant to accept, however, that this power correlates to a liability, saying: ‘[a] right of action is … not simply a reflection of somebody else’s legal position’ (ibid). Yet the quoted passage suggests that there is indeed a corresponding liability here—though Hart and Sacks focus on the liability of the court to be required to

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rights recognised by that system. The primary rights dictate the range of harms (‘the damage’) for which the secondary obligation to pay damages may arise. But there is no set of primary rights—and no range of compensable harms—for which the basic principle does not hold true. In formal terms, tortious liability is always and necessarily a secondary relation arising out of the violation of a primary right. The rights protected by a general liability clause (such as article 1382 of the French Code Civil) are simply more extensive—the set of bilateral claim right/duty relations is larger—than under the common law of tort, which restricts or even excludes liability for interference with certain protected interests in specific circumstances. And yet, there is at least one respect in which the common law of tort is wider in scope than the tort law of other legal systems, which is that it serves a variety of purposes ulterior to the compensation of the injured (and wronged) victim—and these include the protection or vindication of rights by mechanisms that one does not find in tort law in the civilian legal world.66 This is something that Stevens brings out clearly and convincingly in his monograph,67 but I differ from him in finding this problematic, rather than something to be encouraged. In the common law, the protection and vindication of primary rights is indeed inextricably bound up with the entitlement to compensation for loss caused by interference with those rights. However, this creates potential anomalies and arbitrariness of outcome, and prevents the law from performing either function (protecting and vindicating rights/compensating for loss) with full effectiveness. As a preliminary to further analysis, it is important to understand that the protection of rights can be achieved by both direct and indirect mechanisms. Compensatory damages can themselves be regarded as a means of protecting rights, in particular by giving potential infringers a financial incentive not to infringe and by providing—insofar as one can do so by the award of damages—for the continuation of the right in virtual (normative/juridical) form even when it can no longer ‘really’ be enforced because the harm suffered is irreversible.68 This is the sense in which, for example, the Court of Justice of the European Union69 and European Court of Human Rights have affirmed that compensation for damage caused by the violation of a right recognised in their respective legal orders may be necessary to ensure the right’s effective protection.70

grant a remedy, not the liability of the defendant to be required to pay damages. In fact, both jural relations seem to be involved in the concept of a right of action. 66 As to vindication, see, eg, Ashley v Chief Constable of Sussex Police [2008] UKHL 25, [2008] 1 AC 962; K Barker, ‘Private and Public: The Mixed Concept of Vindication in Torts and Private Law’ in S Pitel, J Neyers and E Chamberlain (eds), Tort Law: Challenging Orthodoxy (Oxford, Hart Publishing, 2013); J Varuhas, ‘The Concept of “Vindication” in the Law of Torts: Rights, Interests and Damages’ (2014) 34 OJLS 253. Another ulterior purpose, not pursued in this chapter, is punishment by way of the award of exemplary damages. 67 Stevens (n 8) ch 2. 68 See E Weinrib, ‘Civil Recourse and Corrective Justice’ (2011) 39 Florida State University Law Review 273 (‘the remedy is the continuation of the right’: 274); H Koziol, Basic Questions of Tort Law from a Germanic Perspective (Vienna, Sramek, 2012) paras 3/8–3/11 (Rechtsfortsetzung). A similar idea seems to underlie Stevens’ theory of substitutive damages: Stevens (n 8) 59 et seq. 69 Case C-58/89, Brasserie du Pêcheur v Germany [1991] ECR I-4983, [51] et seq and [82] (effective protection of the rights conferred by EU law requires reparation commensurate with the loss or damage sustained). 70 The right to an effective remedy under art 13 ECHR has been interpreted as requiring the availability of compensation in many circumstances where Convention rights have been violated. See eg Z v United Kingdom (2002) 34 EHRR 97 [109] (‘in the case of a breach of Articles 2 and 3 of the Convention, which rank as the most

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Yet my concern here is direct protection of primary rights by way of specific relief: injunctions, declarations, and—where directed against a public authority—what were once known as the prerogative writs.71 I would propose, as a second step towards the rationalisation of the common law of tort, the separating out of the two functions of rights-protection and compensation of loss. Or, to be more specific: to separate the direct protection of rights by way of specific relief from the compensation of loss by way of damages. The latter is tort law; the former is not. To focus for now just on injunctions: these have traditionally been seen as a remedy for an (actual or threatened) wrong, and their availability has depended upon satisfying the elements of the tort, or whatever other wrong is involved.72 This has created tension in the law, as protection of the right may demand one rule, while imposing on the infringer an obligation to compensate for the loss thereby arising may call for a different rule. The injurer’s liability generally requires proof of fault, but why should rights be protected only against culpable interference? Conversely, if the right is protected against non-culpable interference, what is the basis in justice in making the interferer strictly liable for the resulting loss? To avoid being caught on the horns of this dilemma, we need to make the requirements for an injunction less demanding than those for damages—at least if the injunction is negative (ie prohibitory) in form, as this only requires the defendant to desist from some specified action, whereas damages place an immediate financial burden on the defendant.73 We can see the tension between the pulls of rights-protection and compensation for loss in a number of areas of tort law, perhaps especially in relation to interference with land and goods. English law has no vindicatio, no specific mechanism for saying: ‘That is my chattel or land and I want it back.’74 So the task of allowing the enforcement of rights over property has fallen to the law of tort, and become inextricably but problematically linked with the need to show that the defendant has committed a wrong.75 Tort has been distorted insofar as the owner’s rights over the property have been recognised through the award of damages even where the supposed tortfeasor has acted without fault (ie by the imposition of strict liability). By contrast, in civil law systems the owner of property who has been dispossessed

fundamental provisions of the Convention, compensation for the non-pecuniary damage flowing from the breach should in principle be part of the range of available remedies’). Additionally, art 5(5) of the ECHR itself provides for an enforceable right to compensation for victims of arrest or detention in contravention of the preceding provisions of art 5. 71

See now Civil Procedure Rules 1998 Pt 54. Siskina (Cargo Owners) v Distos Compania Naviera SA, The Siskina [1979] AC 210 (HL), 254 and 256 (Lord Diplock) (the entitlement to an injunction cannot stand on its own but is dependent on there being a pre-existing cause of action against the defendant). The general rule is subject to a few narrow exceptions, eg in the case of injunctions to prevent foreign proceedings: British Airways Board v Laker Airways Ltd [1985] AC 58, 81 (Lord Diplock); AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35, [2013] 1 WLR 1889. Of course, in the case of quia timet injunctions, it must only be shown that there is a strong probability that injury will result and not that it has actually occurred: Attorney-General v Manchester Corporation [1893] 2 Ch 87, 92 (Chitty J). 73 cf Koziol (n 68) para 2/7. 74 A Burrows, A Restatement of the English Law of Unjust Enrichment (Oxford, Oxford University Press, 2011) 28, commentary to 1(1)(d)). 75 See Torts (Interference with Goods) Act 1977 s 3 (orders for delivery of goods); Secretary of State for the Environment, Food and Rural Affairs v Meier [2009] UKSC 11, [2009] 1 WLR 2780 (the action for recovery of land is against those in wrongful possession). An order for the possession of land is not in rem; it is in personam, directed against, and binding only, the defendant: ibid [6] (Lord Rodger). 72

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uses non-tortious mechanisms to get it back.76 As the remedy is independent of tort, it is not necessary to satisfy the requirements of tort liability (for example, fault). This does not, of course, preclude separate proceedings in tort to recover damages for harm resulting from the deprivation of use where fault or some other basis of tortious responsibility can be established.77 A couple of illustrations may be useful. Let us first consider the tort of conversion: deliberate conduct that is inconsistent with the rights of an owner of goods, and so extensive an encroachment on his rights as to exclude him from the use and possession of the goods.78 The tort is one of strict liability in which fault in the sense of either knowledge of the risk of harm or lack of reasonable care plays no part.79 Undoubtedly, the strictness of the action was introduced to enable the owner to vindicate his proprietary rights over the converted goods.80 As Cane writes: ‘The explanation is straightforward: the main function of the tort is to protect property rights’.81 But the tort’s acquisition of this proprietary purpose has led to a number of anomalies,82 of which the most disturbing is the liability in damages of the innocent converter. The leading case is Fowler v Hollins.83 A crook fraudulently obtained cotton from the claimant. The defendant cotton broker, who was entirely ignorant of the fraud, purchased it from the crook, anticipating that one of his regular clients would accept it, as indeed transpired; the defendant received a commission from the client but not a trade profit on the sale. In those circumstances, said the House of Lords, the defendant had committed an act of conversion by transferring the cotton to the client and was liable in damages to the claimant, the real owner. The proposition the Law Lords applied was that ‘any person who, however innocently, obtains possession of the goods of a person who has been fraudulently deprived of them, and disposes of them, whether for his own benefit or that of any other person, is guilty of a conversion’.84 This result seems unfair.85 The situation is not one where strict liability can be justified on some established basis such as non-reciprocal risk86 or the just distribution of harm 76 In German law, Book III of the BGB, titled ‘The Law of Property’, contains in § 985 the simple proposition: ‘The owner may require the possessor to return the thing.’ This applies to both real and personal property. In French law, the owner of property who has been dispossessed may employ the action en revendication to get it back: F Terré and P Simler, Droit Civil—Les Biens, 7th edn (Paris, Dalloz, 2006) 406 et seq. The action has no explicit source in the Code Civil, and indeed pre-dates it, being taken to follow from the concept of ownership itself: U Mattei, Basic Principles of Property Law: a Comparative Legal and Economic Introduction (Westport CT, Greenwood Press, 2000) 183. 77 For a French example, see Cass civ (3) 13 March 1996, no 93-12772 (unpublished). 78 Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19, [2002] 2 AC 883, [39] (Lord Nicholls). 79 Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956, 970 (Lord Diplock). 80 S Douglas, ‘The Nature of Conversion’ [2009] CLJ 198, 218. 81 P Cane, ‘Causing Conversion’ (2002) 118 LQR 544, 544. See further S Green and J Randall, The Tort of Conversion (Oxford, Hart Publishing, 2009) 70 et seq. 82 See further A Tettenborn, ‘Damages in Conversion—Exception or Anomaly?’ [1993] CLJ 128; N Curwen, ‘The Remedy in Conversion: Confusing Property and Obligation’ (2006) 26 OJLS 570. 83 Fowler v Hollins (1875) LR 7 HL 757. 84 ibid 795 (Lord Chelmsford). 85 The hardship of the outcome was noted in the decision of the House of Lords by Lord O’Hagan (ibid 798). Lord Nicholls observed in Kuwait Airways (n 78) [80] that the hardship arises especially for innocent converters who no longer have the goods. In fact, if the innocent converter has sold the goods, he will normally be able to compensate the owner out of his receipts, as damages are based on the value of the goods at the date of conversion. The real injustice is where the innocent converter acts gratuitously or, as in Hollins, for a small commission. 86 G Fletcher, ‘Fairness and Utility in Tort Theory’ (1972) 85 Harvard Law Review 537.

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within a risk community.87 Nevertheless, it has been argued that, as both claimant and defendant are innocent, there is no reason why the former should be left to bear the loss.88 Yet this ignores the general principle of common law: casum sentit dominus. Loss from accident should lie where it falls unless there is a substantial reason for transferring it to someone else.89 Justification for the strict liability has also been sought in the need to protect property rights against intentional interference,90 but this also seems dubious, as the intention goes only to what is done to the goods and not its lawfulness: the defendant is liable even if he reasonably thought that the claimant consented to the interference, or that it belonged to a third party who consented to the interference, or that it was his own property. The purported justifications also ignore the likelihood that the owner of goods will have insurance against loss or theft, and is almost always in a position easily to acquire it, so it would be wasteful to induce those dealing subsequently with the goods to insure separately against liability arising in the absence of their fault.91 The inefficiency is exacerbated to the extent that the owner, as is very likely the case, is better able to estimate the value of the goods and to tailor the insurance cover accordingly. As a second illustration, consider the law of trespass to land. A parallel problem arises to that in conversion. The law’s over-enthusiastic concern to protect the owner’s interest in the land leads to the inappropriate imposition of strict liability. Take these examples. A homeowner is seriously injured when he trips over a package left by a delivery driver at the wrong premises—they were previously occupied by the addressee, whose sign is still hanging outside, but the addressee has moved on.92 Elsewhere, a farmer hears that the telephone company has dug a hole on his land so as to place a pole there, goes looking for it and falls in, suffering injury as a consequence.93 Another landowner is killed while climbing a tree at the edge of his property when he comes into contact with electrical power lines intruding into his airspace.94 In each of these situations, courts in common law jurisdictions have allowed that liability for the injuries suffered might be imposed in the tort of trespass to land, even in the absence of negligence. This seems very hard to accept. The mere fact of the trespass does not establish a justification for strict liability—though one might of course exist independently (as perhaps in the power lines scenario). Basing strict liability

87 G Keating, ‘Distributive and Corrective Justice in the Tort Law of Accidents’ (2000) 74 Southern California Law Review 193. 88 Douglas (n 80) 217 et seq. 89 OW Holmes, The Common Law (first published 1881, New York, Dover Publications, 1991) 94 (‘The general principle of our law is that loss from accident must lie where it falls, and this principle is not affected by the fact that a human being is the instrument of misfortune’). 90 Douglas (n 80) 220. See also S Green, ‘Rights and Wrongs: An Introduction to the Wrongful Interference Actions’, in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2012) 548–50. 91 Admittedly, some duplication would also arise if the dealer were to insure only against fault-based liability, but that liability does not require justification in the same way that strict liability requires justification. 92 Turner v Thorne (1960) 21 DLR (2d) 29 (liability for personal injury in both trespass and negligence). 93 Kopka v Bell Telephone Co of Pennsylvania (1952) 371 Pa 444, 91 A 2d 232 (liability for the injury in trespass; no liability in negligence). 94 cf Beavers v West Penn Power Co (1971) 436 F 2d 869. The actual victim in that case was the son of the owners, but the court did not identify this as an obstacle to the parents’ claim in trespass. The court allowed the defendants’ appeal on other grounds and ordered a retrial, so did not in any case finally resolve the question of the parents’ entitlement to damages in trespass.

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in such cases on trespass to land entails an anomalous and unfair distinction between the landowner and others who are injured or killed by the same conduct, who are entitled to damages only if they prove negligence. And, at least in English law, no defence of contributory negligence can be raised in a claim of trespass,95 which again unfairly privileges the trespass claimant recovering damages for personal injury over other injured persons and unfairly discriminates against the defendant trespasser. My prescription is simple: injunctions and other forms of specific relief should not be seen as (only) remedies in tort. They should be regarded as freestanding mechanisms for protecting rights, and not limited to cases where the elements of a recognised tort or some other wrong are satisfied.96 Standing alone, they will perform their function of rights- protection more effectively, and without introducing the temptation to distort tort law by recognising a liability in the absence of wrongdoing simply so as to open the door to specific relief in order to give direct effect to the right.

C. Reframing the Debate About the Duty of Care in Terms of Protective Scope Whereas my first two rationalising ‘steps’ have addressed the structure of the law of tort as a whole, my third focuses on the tort of negligence, which is undoubtedly the most important tort in practice. If we cannot even manage to identify a rational approach to the tort of negligence, what hope have we to clarify tort law as a whole? And yet the current state of our law gives reason for serious concern on that front, as several astute commentators have observed. According to David Ibbetson, for example, ‘[t]hat the tort of negligence is in a mess goes almost without saying; and given its ever increasing dominance within the common law of tort, it follows that the law of tort is in a mess too.’97 The late Bob Hepple noted that ‘the law of negligence is almost universally criticized for its lack of coherence’.98 Other scholars have demonstrated how the law of tort has fallen apart into a number of barely connected ‘pockets of liability’.99 And judges have expressed similar concerns, Lord Lloyd (for example) remarking that there is ‘a risk that the law of negligence will disintegrate into a series of isolated decisions without any coherent principles at all’.100 A large part of the problem is the profound disagreement that exists about the very nature of the duty of care concept. Very broadly speaking, there are two schools of

95 Law Revision Committee, Eighth Report (Cmd 6032, 1939) 18. The same issue arises in relation to other intentional torts. See, as regards conversion and trespass to goods, Torts (Interference with Goods) Act 1977 s 11(1) and, as regards trespass to the person, Pritchard v Co-operative Group Ltd [2011] EWCA Civ 329, [2012] QB 320. 96 Excluding the actual occurrence of damage where the injunction is sought quia timet. 97 D Ibbetson, ‘How the Romans Did for Us: Ancient Roots of the Tort of Negligence’ (2003) 26 University of New South Wales Law Journal 475, 475. 98 B Hepple, ‘Negligence: The Search for Coherence’ (1997) 50 Current Legal Problems 69, 70. 99 See, eg, J Stapleton, ‘Duty of Care and Economic loss: a Wider Agenda’ (1991) 107 LQR 249; K Stanton, ‘Professional Negligence: Duty of Care Methodology in the Twenty-first Century’ (2006) 22 Professional Negligence 134. 100 Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholas H) [1996] AC 211 (HL), 230 (Lord Lloyd).

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thought: one that sees the duty as constituting the bilateral relationship between claimant and defendant that is essential to tortious liability;101 and another that sees the ‘duty’ language as mere camouflage for a ‘control device’ or ‘control mechanism’ that guards against excessive or inappropriate liability102 or even for an effective immunity from liability in negligence.103 Though each of these theories captures something important about the duty of care concept, neither is adequate on its own to embrace all its aspects. The ‘control mechanism’ theory makes the duty language a mere fiction: the duty simply indicates the situations where negligence liability may in principle arise, which is a normative judgement about the correct scope of the tort and nothing to do with the obligation on the individual defendant.104 Writers in this school are therefore reduced to admitting that the duty of care is not a ‘real’ duty at all and recommend that the concept be abandoned.105 Thus, according to Donal Nolan, ‘the duty of care concept is now obscuring understanding of negligence law and hindering its rational development’: it should consequently be ‘deconstructed’, with the various issues that are now subsumed under the umbrella term separated out and reclassified under other elements of the tort.106 I do not go so far, and— contrary to Nolan and others of the same opinion—I believe that the duty of care, as a real duty resting on real people, can be made to perform a useful and intelligible role in the modern law of negligence. In fact, the sheer counter-intuitive quality of the ‘control mechanism’ thesis—which will be immediately recognised by anyone who has ever tried to teach tort law to a not unreasonably bewildered class of undergraduates—has led to a resurgence of attempts to demonstrate that the duty of care is indeed a ‘real’ duty.107 I sympathise with the attempt, but criticise its execution, and in particular its focus on the question of the existence of a duty of care, which assumes that it refers to a myriad set of specific duties with an on-off, fragmented character. On this alternative view, tortious liability for negligence consists of a network of reciprocal relationships constituted by the duty of care owed by one person to another. There is thus not a single ‘duty of care’, but rather numerous ‘duties of care’ (plural)108 of a relatively high degree of specificity, linking a particular defendant with a

101

See, eg, N McBride, ‘Duties of Care—Do they Really Exist?’ (2004) 24 OJLS 417. See, eg, Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1 (HL), 25 (Lord Fraser); Caparo Industries plc v Dickman [1990] 2 AC 605, 621 (Lord Bridge); J Fleming, ‘Remoteness and Duty: The Control Devices in Liability for Negligence’ (1953) 31 Canadian Bar Review 471; J Morgan, ‘The Rise and Fall of the General Duty of Care’ (2006) 22 Professional Negligence 206; Lunney and Oliphant (n 4) 121 et seq. As will be apparent from the analysis presented in the text, I no longer believe, contrary to what is asserted in the lastmentioned work, that the duty of care is best viewed as a control device, though it can be helpful to consider it in such fashion for particular purposes. 103 D Howarth, ‘Negligence after Murphy: Time to Re-Think’ [1991] CLJ 58, 93–94 (‘duty of care cases are really about giving the defendant an immunity against liability in negligence’). 104 For criticism of this ‘cynical’ or ‘sceptical’ approach to duty language, see respectively McBride (n 101) 419 et seq; J Goldberg and B Zipursky, ‘The Moral of MacPherson’ (1998) 146 University of Pennsylvania Law Review 1733, 1799 et seq. 105 See especially D Nolan, ‘Deconstructing the Duty of Care’ (2013) 129 LQR 559; J Plunkett, ‘The Duty of Care: A Comparative Common Law Analysis’ (DPhil thesis, University of Oxford, 2015). 106 Nolan (n 105) 559. 107 Notably Goldberg and Zipursky (n 104) 1825 et seq; McBride (n 101); Zipursky, ‘Rights, Wrongs, and Recourse’ (n 65) 55 et seq. 108 McBride (n 101) esp at 432 et seq (having millions of duties not a problem, so long as they are negative duties). For criticism, see D Howarth, ‘Many Duties of Care—Or a Duty of Care? Notes from the Underground’ (2006) 26 OJLS 449. 102

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particular claimant, each duty corresponding to a specific (Hohfeldian) claim right.109 In Hohfeld’s language, these duties are ‘multital’: a large number of fundamentally similar duties reside in one person, correlating to the same number of claim rights residing in many others.110 This approach shares with the ‘control mechanism’ approach the problematic assumption that there are specific situations in which a duty of care ‘comes into existence’, and that the duty has an on-off character such that sometimes we owe a duty of care and sometimes we do not. Further, the duty has a fragmented character: it is activity specific in that I owe one duty of care in driving my car, another in operating machinery, another in playing sports, another in preparing home-made jam for sale at a fundraising event, etc; it is loss specific insofar as the existence of a duty of care is to be assessed relative to each type of loss the claimant suffers, so it becomes possible to say that the defendant owed a duty of care as regards the claimant’s life and (physical) health but not as regards the claimant’s purely economic wellbeing. There are numerous reasons why such an account of the duty of care must be regarded as inadequate: 1. Inconsistency with how the duty is really experienced. The on-off, fragmented, multital character of the duty that is presumed is inconsistent with how the duty is experienced in the real world. As Howarth has observed, ‘the “many duties” view makes the law yet more arcane and difficult for lay people to understand’.111 The duty’s practical content is not generally affected by limits on who is owed the duty or what losses it covers.112 To be intelligible, a duty must be linked with the practical actions needed to discharge it in the circumstances in question. Consider these examples: When digging up the road outside the Spartan steel works in Birmingham, what was the duty owed by the men employed by Martin & Co (Contractors) Ltd who damaged the electricity cable connecting the factory with its supply?113 They undoubtedly owed a duty to take care in their excavations, but what meaning could they possibly attach to the further specification that their duty of care extended only to physical damage and not to pure economic loss? What difference would it make to the precautions they were obliged to take? Or, when I am driving, does it make any practical difference to how I ought to drive if I am told that I owe a duty of care only to those I might hit and injure, and their relatives (but only if the latter come upon the immediate aftermath of the accident and thereby suffer psychiatric harm), and no duty of care to others who may or may not come to the scene of the accident I may or may not cause, and thereby suffer psychiatric harm?114 Should I be mentally discounting the risk of psychiatric harm to mere bystanders in determining

109 See McBride (n 101); Zipursky, ‘Rights, Wrongs, and Recourse’ (n 65) especially at 63 et seq; cf Hohfeld 1913 (n 65); Hohfeld 1917 (n 65). 110 Hohfeld 1917 (n 65) 743–45. See further Howarth (n 108) 450 et seq. 111 Howarth (n 108) 472. 112 Possibly in some circumstances it might make a difference if one were to exclude (say) purely economic or psychiatric interests from the calculation of what reasonable care requires, but this is certainly not so in the most typical cases of tortious liability. 113 cf Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27. 114 cf McLoughlin v O’Brian [1983] 1 AC 410.

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2. An incomplete account of what constitutes reasonable care. A further problem arises if the duty of care is taken to refer to the set of bilateral duty/claim right relations applying to a particular activity. If each duty in the set is defined only in terms of the care required so as to provide reasonable protection of the correlative claim right, then the risks posed by the activity towards other claim right holders are irrelevant in determining the duty’s content.115 But this is quite contrary to how risks and benefits are evaluated when assessing the reasonableness of the care exercised by a tort defendant. It is quite clear that, as a general rule, ‘all foreseeable risks created by the injurer should be and are considered by courts when they set the standard of care’.116 3. Chronological incoherence. The ‘many duties’ theory is also open to the charge of chronological incoherence insofar as whether or not a duty of care ‘exists’ can be dependent on future facts. Sometimes the future facts will be facts relating to the accident itself— for example, was the claimant within the ‘zone of physical danger’ so as to qualify as a ‘primary victim’ under Page v Smith117 and thus entitled to damages for psychiatric harm even in the absence of physical injury? Sometimes the duty will even be dependent on facts subsequent to the accident: in the context of psychiatric harm, whether or not the duty ‘exists’ as regards a secondary victim depends (inter alia) on whether or not he or she, if not present at the scene, comes upon the immediate aftermath of the accident.118 But how can the existence of my duty of care at the time at which it must be performed (when driving, when operating machinery, etc) depend upon a future contingency? This provides an additional illustration of how the whole idea of duty has come to be divorced from the real-life position of persons who are expected to act in conformity with it. 4. Duty dependent on court’s ex post facto judgment. Further chronological incoherence arises insofar as the existence of a duty is also dependent on the court’s ex post facto judgment as to whether it would be fair, just and reasonable to impose a duty of care in the circumstances that occurred. Under the tripartite Caparo approach that English law uses to determine the existence of a duty of care, at least in novel situations, a duty arises only when—in addition to being satisfied as to the reasonable foreseeability of harm and the ‘proximity’119 of the defendant’s relationship to the claimant—‘the court considers it fair, just and reasonable that the law should impose a duty of a given scope on the one party for the benefit of the other.’120 The circularity of the formulation is

115 See, eg, A Fagan, ‘Distributed Damage: A South African and Common Law Perspective’ (2015) 6 Journal of European Tort Law 124, 135 (a claimant must show that the risk of his injury, on its own, was a sufficient reason for the defendant to have taken greater care than he did). 116 A Porat, ‘Misalignments in Tort’ (2011) 121 Yale Law Journal 82, 124. 117 Page (n 36). 118 McLoughlin (n 114). 119 A not unproblematic notion, but let us pass over it for now. 120 Caparo (n 102) 618 (Lord Bridge).

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immediately apparent, but what is perhaps more serious is how this leaves defendants utterly helpless to identify the scope of their duty of care (for whose interests must they take care? against which risks?) when contemplating engaging in the activity whose performance injures the claimant. 5. Obscuring the concept of which the bilateral legal relations are postulates. At a more fundamental level, the fragmentation of the concept of the duty of care into sets of bilateral legal relations (claim right/duty, privilege/no right) erases the composite idea of which the legal relations are postulates. This composite idea is more than the sum of its parts, insofar as the latter are identified with the specified relations; it is itself an object of legal analysis, to be understood in terms of its function, value, historical development and relationship with other legal concepts, and considerations of justice generally.121 By contrast, the bilateral legal relations are purely formal in character and are analytical rather than functional.122 They have no meaning for ordinary people. 6. Specificity of bilateral legal relations inconsistent with abstract and general character of ‘law’. A last, equally fundamental problem is that, even viewed as composite sets, bilateral claim right/duty and privilege/no right relations cannot capture the abstract and general form that legal principles—commands, prohibitions, entitlements, etc—usually take (ignoring such exceptions as special rules relating to the Crown). Legal principles are formulated in impersonal terms—as duties or rights or powers of persons generally, even if they may only be applicable in particular circumstances. The duty of care is also of this nature: it is a duty imposed by law in respect of all of our social interactions, and owed by persons generally. It may be objected that this account of the duty of care ignores the distinctions that have emerged in the case law between cases where injury caused by negligence may in principle give rise to liability and those in which it may not. How does one account, for example, for the general exclusionary rule applying to liability in negligence for pure economic loss or psychiatric harm? I believe that the answer lies in the duty’s protective scope.123 Where D’s carelessness causes injury to C, the question should not be, ‘Did D owe a duty of care?’, but ‘Did C’s injury fall within that duty’s protective scope?’ This involves a normative inquiry into the losses caused by D for which he or she can justly be made to compensate. Insofar as the reason for finding a breach of duty is that the risks of D’s conduct were so foreseeable that he or she ought to have taken precautions to avoid them, but did not, it is logical (but not essential) to limit D’s liability to those persons who were foreseeably affected by the breach of duty and to the types of injury that were also the foreseeable consequences

121 cf P Schlag, ‘How To Do Things With Hohfeld’ (2015) 78 Law and Contemporary Problems 185. There is an analogy with how property theorists have argued against the ‘bundle of rights’ theory of property: see especially J Penner, ‘The “Bundle of Rights” Picture of Property’ (1996) 43 University of California Los Angeles Law Review 711. A bundle of legal relations provides no explanatory model of the concept from which they are derived but merely indicates the absence of one: ibid 714. 122 See also P Cane, ‘Rights in Private Law’, in Nolan and Robertson (n 90) 42 (‘Hohfeldian correlativity is purely formal and definitional’). 123 cf Koziol (n 68) para 7/15 et seq (protective purpose of the rule on which liability is based). For a more sceptical analysis, see M Stauch, ‘Risk and Remoteness in Negligence’ (2001) 64 MLR 191, 197–99, suggesting that the theory of protective scope is convincing only in cases of pre-existing relationship.

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of the breach.124 It also seems appropriate at this stage to take into account the hierarchy of protected interests, such that interests in the person and in property are presumptively protected so long as they are foreseeably injured, whereas pure economic interests presumptively fall outside the scope of the duty of care’s protection (despite the foreseeability that they would be harmed). To that extent, the device of the ‘protective scope’ performs the function not only of ‘factual duty’ (the foreseeable claimant rule) but also ‘notional’ or ‘legal’ duty,125 where there must be normative consideration of the claimant’s entitlement to compensation for the loss suffered.126 Thus, for example, in the Spartan Steel case, one should say not that the defendant contractors owed a duty of care as regards the claimant’s property damage but no duty of care as regards its pure loss of profit, but that they owed (one) duty of care whose protective scope encompassed the claimant’s property damage but not its pure loss of profit. And, in a psychiatric injury case, one should avoid thinking that the defendant owed (separate) duties of care to the primary victim’s relatives who were present at the accident, but no duty of care to relatives who were neither present at the accident nor came upon its immediate aftermath, or to unrelated bystanders; instead, one should say that the relatives present at the accident fell within the duty of care’s protective scope, while the other persons specified did not. This way of avoiding the problems associated with the focus upon the duty of care’s existence is not entirely alien to our courts, having been relied upon in a number of recent appellate decisions.127 But the seeds thereby sown have yet to germinate. It is now time for us to give them some reproductive assistance.

III. In Place of a Conclusion I end this chapter with a rallying call in place of a conclusion. If we, as tort lawyers, care about the future development of this highly politicised area of private law, then we must engage with the public debates about it. We have to overcome the tendency of those of us in academia to focus on common law to the exclusion of statute.128 We cannot simply let major

124

See especially Jolley v Sutton London Borough Council [2000] 1 WLR 1082 (HL), 1091 (Lord Hoffmann). As to the terminology, see Nolan (n 105) 563. 126 The idea of protective scope cannot solve the particular problems associated with liability for omissions, though these may be adequately addressed—without inconsistency with the approach I am proposing—by other means. One need only observe that the duty of care is generally limited to affirmative conduct and does not usually entail a duty to undertake positive actions for the benefit of third parties. This seems a simple, intelligible notion that does not involve any distortion of the ordinary concept of duty, though naturally the policy choices that underpin the principle are open to debate and criticism. 127 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL) (Lord Hoffmann); Jolley (n 123) 1091 (Lord Hoffmann); Mcfarlane v Tayside Health Board [2000] 2 AC 59 (HL), passim; Rees v Darlington Health Board [2004] 1 AC 309 (HL) [63] (Lord Hope) and [106] et seq (Lord Millett). See also Calvert v William Hill Credit Ltd [2008] EWCA Civ 1427, [2009] Ch 330. 128 See eg Cane (n 7); B Zipursky, ‘Coming Down to Earth: Why Rights-Based Theories of Tort Can and Must Address Cost-Based Proposals for Damages Reform’ (2006) 55 DePaul Law Review 469, 470. 125

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reforms slip past us.129 If we allow fundamental principles to be eroded,130 the damage may be irreparable. But, just as we must challenge the rhetoric where it is overblown,131 and the figures when they are misused,132 we must make sure our own house is in order. The incoherence that reigns in large parts of our law of tort is a major barrier to our communication of its key tenets and our engagement in debates about its future. Ultimately, as suggested by others in this volume, codification or restatement of the law may be the best way forward.133 But that can proceed only on the basis of a more rational understanding of tort law than prevails today. I hope that the ideas put forward in this chapter may assist in that process of rationalisation.

129 cf the largely unchallenged, and perhaps also largely unnoticed, abolition of the century-old tradition of strict liability for breach of industrial safety standards (first recognised in Groves v Lord Wimborne [1898] 2 QB 402) by s 69 of the Enterprise and Regulatory Reform Act 2013. 130 cf the announcement in the Chancellor of the Exchequer’s Autumn Statement in November 2015 that the Government would bring forward measures, following a consultation on the details in 2016, to remove the right to claim general damages for minor whiplash injuries: www.gov.uk/government/publications/spending-review-andautumn-statement-2015-documents/spending-review-and-autumn-statement-2015; see further J Hyde, ‘Spending Review: Osborne Raises Small Claims Limit to £5k and Scraps Whiplash Compensation’, Law Society Gazette, 25 November 2015. 131 See, eg, K Oliphant, ‘“The Whiplash Capital of the World”: Genealogy of a Compensation Myth’, in Eoin Quill and Raymond Friel (eds), Damages and Compensation Culture: Comparative Perspectives (Oxford, Hart Publishing, forthcoming 2016). 132 See, eg, R Lewis, A Morris and K Oliphant, ‘Tort Personal Injury Claims Statistics: Is There a Compensation Culture in the United Kingdom?’ (2006) 14 Torts Law Journal 158. 133 See especially the contributions to this volume of Martin Hogg and Andrew Burrows, and the latter’s Restatement (n 74).

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4 The Challenges of Private Law: A Research Agenda for an Autonomy-Based Private Law HANOCH DAGAN

I. The Task What are the most important challenges private law faces? Part of the answer to this question likely depends on upcoming changes in the empirical external reality in which private law operates. But this question—my task in this chapter—goes deeper than that. Private law, like law more generally, is a justificatory practice: because law claims to have the legitimate authority over monopolised power in society, its carriers must always justify its prescriptions and should moreover seek to further improve the law so that it lives up to its implicit and often imperfectly executed promises. This means that an important source of law’s challenges comes from within; that at least a subset of the challenges of private law is dependent upon the value of private law. My efforts in this chapter will follow this path: I will offer a normatively attractive conception of private law, and will seek to identify the challenges this conception presents to the various legal actors who participate in the evolution of private law or affect its development. My interpretation of private law, which builds on prior work I have done both as a single author and in collaboration with Avihay Dorfman as well as with Michael Heller,1 begins with some dissatisfaction with the prevailing approaches to private law. Indeed, much of private law theory seems to be dominated by deadlock between apologies of its traditional, normatively disappointing conception as the ‘law for persons regarded as … morally selfsufficient atoms’,2 on the one hand, and its radical deconstruction as a garden-variety mode of regulation, on the other. This predicament is both surprising and disappointing. It is surprising because private law theory has become a thriving industry in legal academe

1 See H Dagan, Property: Values and Institutions (New York, Oxford University Press, 2011); H Dagan and MA Heller, The Choice Theory of Contracts (New York, Cambridge University Press, 2017) forthcoming; H Dagan, ‘Pluralism and Perfectionism in Private Law’ (2012) 112 Columbia Law Review 1409; H Dagan and A Dorfman, ‘Just Relationships’ (2016) 116 Columbia Law Review forthcoming. 2 A Brudner with JM Nadler, The Unity of the Common Law, 2nd edn (New York, Oxford University Press, 2013) 353.

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in the past few years. It is disappointing because the fact of our interdependence renders private law an indispensable part of the fabric of our social life. This means that discarding the intrinsic value of private law unacceptably collapses the social to the public; it renders our interpersonal relationships subordinate and subservient to our vertical relationships as co-citizens. It also means that conceptualising the value of these horizontal relationships in libertarian terms cannot possibly comply with the most fundamental commitments of any liberal polity to individual self-authorship (or self-determination) and to substantive equality. These pitfalls of the existing approaches to private law become particularly unfortunate in an era of globalisation, in which our legal environment is increasingly shaped by private law beyond the state.3 Private law theory can do better. At its best, I will argue, private law—either common law or equity; judge-made law or statutory4—establishes ideal frameworks for respectful interaction between self-determining individuals, which are indispensable for a society where all recognise one another as genuinely free and equal agents. Only private law—the law of our interpersonal (horizontal) relationships—can form and sustain the variety of frameworks necessary for our ability to lead our chosen conception of life. And only private law can cast them as interactions between free and equal individuals who respect one another as the persons they actually are, thus vindicating the demands of relational justice—hence the two animating principles of a liberal (that is, autonomy-based) private law: structural pluralism and interpersonal accommodation. Building on this account of private law, I offer a preliminary survey of three important challenges to private law in a liberal society. One challenge, prompted by the injunction of structural pluralism, is that of identifying missing frameworks: detecting spheres of life in which private law fails to supply a sufficiently diverse set of alternative property institutions or contract types and is thus insufficiently autonomy-enhancing. Another type of challenge emerges whenever the constitutive good(s) of the social practice that the parties engage in are in tension with the injunction of interpersonal accommodation. These cases require private law to either allow these goods to override the injunction of interpersonal accommodation or else discard or reform the pertinent legal (and social) practice. Finally, because the intrinsic value of private law does not require private law and public law to be treated as mutually exclusive categories, private law can consider utilising public law (vertical) mechanisms that can help secure its horizontal mission and furthermore, must be careful not to undermine the liberal state’s commitments to distributive justice, democratic citizenship, and aggregate welfare. This chapter thus concludes with a consideration of the ways in which private law can coordinate with public law, namely: either supplement its doctrinal framework with a regulatory infrastructure or adapt it in order to address pertinent public commitments while still meeting the demands of relational justice.

3 See N Jansen and R Michaels, ‘Beyond the State? Rethinking Private Law: Introduction to the Issue’ (2008) 56 American Journal of Comparative Law 527. 4 Indeed, as the text implies, the distinction between public and private law cannot plausibly turn on the question of whether the legal doctrine at hand is legislative or judge-made. While the choice of institutional design is not necessarily indifferent to this distinction, it seems indisputable—at least if we accept the European codes as respectable manifestations of private law—that legislatures, and not only judges, are authorised to promulgate private law doctrines and, moreover, that they can do so just as well as their peers from the court.

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II. Autonomy-Based Private Law A. Theoretical Deadlock The traditional view of private law—shared by libertarians, modern Kantians (and Hegelians) and many liberal egalitarians—considers private law to be that part of our law that is resistant to demanding interpersonal claims. Per this view, even if commitment to people’s self-determination and thus to their substantive equality has any bearing on the law, it should not affect private law. Some argue that such values are irrelevant in this context because private law precedes our social contract;5 others invoke the traditional private-public distinction regarding a division of labour between the responsibility of the state to provide a fair starting point for all and the responsibility of the individual to pursue her ends using her fair share.6 Either way, these accounts agree that private law should be guided by a commitment to individual independence and thus subscribe to a private law libertarian position. This position is manifested in the prevailing conceptualisation of property around the owner’s right to exclude and of contract as solely the product of the parties’ will.7 This traditional understanding of private law has been harshly criticised. Critics oppose the traditional private-public distinction by highlighting private law’s distributive effects and emphasising the public nature of the choices on which it relies. They further condemn the discursive effects of this distinction that obscures regressive features of private law and improperly shields it from critical scrutiny.8 Some critics conclude that private law is merely one form of regulation and insist that the distinction between private and public law derives solely from the instrumental characteristics of these regulatory devices.9 One implication of this view is that the only live question in examining proposals for the collectivisation of a traditionally private law doctrine—for example, tort law—is one of comparative performance. The traditional accounts of private law as the law of independence deserve both conceptual and normative disapproval. Private law relies on public choices, and critics are thus correct to resist the attempt to immunise any of its current components from critical scrutiny. A private law libertarian regime is also normatively disappointing because even a public law that is committed, as the traditional view prescribes, to redress its pitfalls would fail given two facts about our human condition—our interdependence and our personal difference—that account for the profound implications of the law governing our 5

See R Nozick, Anarchy, State, and Utopia (New York, Basic Books, 1974). See R Dworkin, Law’s Empire (Cambridge MA, Harvard University Press, 1986); J Rawls, Political Liberalism (New York, Columbia University Press, 1993); A Ripstein, Force and Freedom: Kant’s Legal and Political Philosophy (Cambridge MA, Harvard University Press, 2009); E Weinrib, Corrective Justice (Oxford, Oxford University Press, 2012); Brudner with Nadler (n 2). 7 See respectively T Merrill and H Smith, ‘The Morality of Property’ (2007) 48 William & Mary Law Review 1849; C Fried, Contract as Promise: A Theory of Contractual Obligation (Cambridge MA, Harvard University Press, 1981). 8 See, eg, R Gordon, ‘Unfreezing Legal Reality: Critical Approaches to Law’ (1987) 15 Florida State University Law Review 195. 9 See, eg, M Horwitz, ‘The History of the Public/Private Distinction’ (1982) 130 University of Pennsylvania Law Review 1423. 6

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i nterpersonal relationships on our ability to lead our life.10 And yet, the critics’ reductionist account of private law that ignores its unique nature is no more acceptable. By confusing their justified criticism of private law libertarianism with a wholesale critique of the possibility of a private law, these critics threaten to efface private law’s value and eradicate its potentially virtuous role.

B. Self-Authorship and Interpersonal Relationships So why is the traditional conception of private law problematic and how can we envision private law differently? Private law’s traditional conception relies on an ideal of just terms of interactions featuring a conception of the person as formally free and equal. In this conception, people are equal in their interpersonal relationships if none is the superior or subordinate of another; and each person is free as against all of the others, because entitled to set and pursue his or her own conception of the good, rather than depending upon the conceptions of others.11 While die-hard libertarians subscribe to this position because, for them, independence and formal equality are the only legitimate commitments of law tout court, the liberal conventional position takes seriously individual self-determination—and thus also substantive equality—but nonetheless excludes these values (at least in principle) from private law. Division-of-labour liberals insist that the polity’s responsibility to these values is purely vertical, that it does not—indeed should not—affect our horizontal relationships, and that as long as we respect each other’s independence and formal equality we bear no responsibility to each other’s autonomy and need not be concerned with claims for substantive equality. They argue that assuming that the state complies with its vertical obligations, all that free individuals need in order to form, pursue, and succeed in realising the conception of their life—including their preferred interpersonal arrangements—is properly provided by the conventional conceptions of property as ‘sole and despotic dominion’ and contract as a means for delineating boundaries of protected domains.12 But this understanding of private law, which renders the canonical liberal commitments to individual self-determination (and not merely independence) and to substantive (and not merely formal) equality irrelevant to our interpersonal relationship, is profoundly unsatisfying. Discarding liberalism’s most important commitments from the realm of private law is troubling due to two facts of our human condition: human interdependence and personal difference. Our practical affairs are deeply interdependent. They are replete with interactions with others, ranging from fairly trivial transactions to the most crucial relationships in our lives, such as those related to family, friends, work, and other significant positions we come to occupy in society. These interactions can take either voluntary or involuntary forms of being with others. We invite, and are invited by others, to join projects, occasionally because social interaction is critical to the project, and on other occasions for more instrumental reasons, whereby enlisting others makes our projects possible or practical. Our projects also

10 See Dagan, Property (n 1) ch 3; H Dagan, Reconstructing American Legal Realism & Rethinking Private Law Theory (New York, Oxford University Press, 2013) chs 5 and 8. 11 See, eg, A Ripstein, Private Wrongs (Cambridge MA, Harvard University Press, 2016) ch 10. 12 See, eg, T Merrill, ‘Property as Modularity’ (2012) 125 Harvard Law Review Forum 151, 157–58.

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might render vulnerable the legitimate interests of other people, including those who stand beyond the privity of such a joint project. Indeed, the ability to lead one’s life in general, and certainly successfully so, is influenced at almost every turn by both of these forms of interaction. The traditional conception of private law renounces the responsibility of private law to facilitate such interactions; thus, it compromises the significance of our interpersonal relationships to our conceptions of the good life. Moreover, the significance of our standing in relation to others also implies that the terms of the interactions that arise under conditions of interdependence should be assessed as just or unjust. In this context, the traditional conception is, once again, disappointing, especially given the fact of personal difference, namely, the fact that we all constitute our own distinctive personhoods against the background of our peculiar circumstances. The traditional conception of private law replaces a concern for what it is for real people to relate to one another as free and equal agents, with a concern for what it is for equal abstract beings to relate to one another. By assigning the sole responsibility to address our personal differences to public law, this conception implicitly rejects any claims private individuals may place on one another as a matter of relational justice. Taking seriously the facts of interdependence and of personal difference implies that the liberal commitments to individual self-determination and to substantive equality are just as crucial to our horizontal relationships as they are to our vertical ones, although they may entail different implications in these different dimensions. An individual person is free not merely in the formal sense of not being subordinated to the choice of another, but rather in the more demanding sense of being able to make meaningful choices about how his or her own life should go. Indeed, as John Rawls writes, free individuals act on their capacity ‘to have, to revise, and rationally to pursue a conception of the good.’13 A person can be ‘free’ in the former sense just because no one else gets to be in a position of domination over her, but nothing beyond this point speaks for this person’s ability to form, pursue, and succeed in realising a conception of the good. A fully human life entitles people, as HLA Hart remarked, to self-determination, which requires a measure of independence but ‘is not something automatically guaranteed by a structure of negative rights’.14 And if a just relationship stands for reciprocal respect of each party’s claim for self-determination, relational justice cannot be exhausted by the duty of non-interference; at times, it may require law to proactively facilitate people’s cooperative efforts and furthermore impose certain affirmative duties of accommodation founded on such a robust notion of interpersonal respect.15

C. Self-Authorship and Private Law Theory Indeed, a genuinely liberal theory of private law must take seriously law’s commitment to autonomy as self-authorship or self-determination. Therefore, it must adhere to the unique responsibility of private law to offer a repertoire of institutions for interpersonal relationships that responds to various forms of valuable human interaction, and should thus be

13

J Rawls, Justice as Fairness: A Restatement (Cambridge MA, Harvard University Press, 2001) 19. H Hart, ‘Between Utility and Rights’ (1979) 79 Columbia Law Review 828, 836. 15 See H Dagan and A Dorfman, ‘Justice in Private’ (2014), available at http://papers.ssrn.com/sol3/papers. cfm?abstract_id=2463537. 14

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sufficiently distinct from one another so as to offer people meaningful choice for any given sphere of social activity and interaction. A liberal private law should construct these institutions in line with the injunction of interpersonal respect for self-determination, namely: require parties to meaningfully recognise each other as free and equal persons and thus respect each other not only as mere bearers of a generic human capacity for choice, but rather as the persons they actually are. As Joseph Raz explains, autonomy requires not only appropriate mental abilities and independence but also ‘an adequate range of options’. While a wide range of valuable sets of social forms is available to societies pursuing the ideal of autonomy, autonomy ‘cannot be obtained within societies which support social forms which do not leave enough room for individual choice’. For choice to be effective, and for autonomy to be meaningful, there must be (other things being equal) ‘more valuable options than can be chosen, and they must be significantly different’, so that choices involve ‘tradeoffs, which require relinquishing one good for the sake of another’.16 Indeed, given the diversity of acceptable human goods from which autonomous people should be able to choose, and the distinct constitutive value of these goods, the state must recognise a sufficiently diverse set of robust frameworks for people to organise their lives. Autonomy’s prescription of pluralism is relevant to law because many of these frameworks cannot be actualised without active support of viable legal institutions (or law-like social conventions). The insights of both lawyer economists and critical scholars are instrumental in establishing this point: the former demonstrate how many of our existing practices rely on legal (or law-like) devices that help overcome numerous types of transaction costs, such as information costs, cognitive biases, and heightened risks of opportunistic behaviour;17 the latter remind us how many of these options become available to us only due to cultural conventions that are often, especially in modern times, legally constructed.18 Therefore, a commitment to personal autonomy by fostering diversity and multiplicity cannot be properly accomplished through a hands-off policy and a hospitable attitude to freedom of contract. Rather, the liberal state should ‘enable individuals to pursue valid conceptions of the good’ by proactively providing ‘a multiplicity of valuable options’.19 Accordingly, a structurally pluralist private law includes diverse types of private law institutions, each incorporating a different value or different balance of values. The boundaries between these institutions should be open, enabling people to freely choose their own ends, principles, forms of life, and associations by navigating their way among various institutions. While at a certain point the marginal value created by adding another distinct institution is likely to be nominal in terms of autonomy, pluralism implies that private law’s supply of these multiple institutions should be guided not only by demand. Although demand for certain institutions generally justifies their legal facilitation, the absence of demand should not necessarily foreclose it insofar as these institutions add valuable options of human flourishing that significantly broaden people’s choices. Only in this way can private law recognise and promote the autonomy-enhancing role of multiplicity.20 16

J Raz, The Morality of Freedom (Oxford, Clarendon Press, 1986) 372, 395, 398. See R Korobkin and T Ulen, ‘Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics’ (2000) 88 California Law Review 1051. 18 See Dagan, Property (n 1) chs 1 and 4. 19 Raz (n 16) 133, 162, 265. 20 See Dagan, ‘Pluralism and Perfectionism in Private Law’ (n 1). 17

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A satisfying conception of private law should not only appreciate its indispensable role in forming and sustaining the variety of frameworks for our interpersonal interactions which are necessary to our ability to form and lead the conception of our life. It should also affirm and vindicate our claims from one another to relational justice, which derives from a robust notion of interpersonal respect to each other’s right of self-determination. In other words, it should conceptualise these frameworks as interactions between free and equal individuals who respect each other given the persons they actually are. Indeed, given personal differences and the significance of our interdependence to our self-determination, relational justice—the dimension of justice that focuses on the terms of our interactions as private individuals, rather than as patients of state institutions or as citizens—cannot contend with the requirement, endorsed by both modern Kantians and division-of-labour liberal egalitarians, that people respect each other as independent and formally equal individuals. Rather, if private law is to rely on a normatively defensible conception of justice, it must cast our interpersonal interactions in terms of relationships between self-determining individuals who respect each other given the persons they actually are. Thus, for persons to relate as equals, private law must structure the terms of their interaction so that it consists of the conception of the person as a substantively, rather than formally, free and equal agent. Pace the traditional commitment to formal freedom and equality, these terms of interaction must not be specified in complete disregard of circumstances as well as constitutive choices—choices which pertain to people’s ground projects (as opposed to their brute preferences)—insofar as they are crucial for the interacting parties’ ability to act as self-determining agents. An autonomy-enhancing private law thus requires exactly the kind of accommodative structure that the traditional conception of private law denies.21

D. From Theory to Law Both the prescription of structural pluralism and the injunction of relational justice challenge mainstream private law theories. But they are by no means strangers to private law itself. Quite the contrary, the conception of private law summarised above renders the theory of private law more loyal to its practice, because private law as we know it is quite different from its conventional (libertarian) theoretical portrayal. Properly interpreted, private law is committed to enhancing our autonomy, rather than merely to safeguarding our independence. Accordingly, it is by and large structurally pluralist, rather than monist; and it does not content itself with formal equality, but rather increasingly aims at vindicating our substantive equality. Thus, as I have demonstrated elsewhere, the renewed orthodoxy of property as exclusion22 fails to properly account for property because it marginalises constitutive characteristics of property—notably, governance and inclusion, reflecting the two implications of an autonomy-enhancing understanding of property regarding structural pluralism and interpersonal accommodation respectively. A structurally pluralist conception of property, by contrast, remedies both failures. While appreciating the importance of law’s support of the fee simple absolute, given its indispensable role for people’s independence, 21 22

See Dagan and Dorfman (n 1). See, eg, J Penner, The Idea of Property in Law (Oxford, Clarendon Press, 1997); Merrill and Smith (n 7).

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it resists the way exclusion theory privileges this institution and suppresses others as variations or exceptions. This understanding of property takes the heterogeneity of our existing property law seriously. It also highlights how property’s internal life is structured by a wide range of sophisticated governance regimes aimed at facilitating various forms of interpersonal relationships.23 Similar observations apply to contract. Notwithstanding the great, unifying force of the so-called classical contract theory, contract law is not the shapeless, ‘general’ law taught to generations of first-year students. Diverse family, work, home, and consumer contract types are at least as central to our shared contracting experience as are widget sales. Furthermore, it should be no surprise that the values plausibly animating marriage, employment, and consumer transactions differ from each other and from those driving commercial sales, and moreover that the contract types within each of these contractual spheres offer individuals choices among divergent values. Indeed, contract’s core role in a liberal polity is to serve autonomy: contract enhances self-authorship by enabling people legitimately to enlist others in advancing their own projects, goals, and purposes. But in order to properly comply with this important mission contract law must follow, as it by and large does, the structurally pluralist prescription and ensure the availability of distinct, normatively attractive types within each contractual sphere.24 The prescription of interpersonal accommodation also typifies private law. Thus, my critique of the exclusion theory of property demonstrated that in line with this prescription, inclusion is sometimes inherent in property; for example, this is demonstrated by the law of fair housing, which prohibits discrimination in the sale or rental of residential dwellings. Refusing to consider a would-be buyer of a dwelling merely because of her skin colour (for example) fails to respect the individual on her own terms, in violation of the autonomy-based private law injunction of relational justice. Buying and renting a dwelling (a major decision of self-determination) exposes people to discriminatory practices at the hands of some home owners and landlords. Thus, regardless of whether the state takes care of its obligations—in terms of supplying sufficient housing options to all and sustaining integrative residential communities—private law must not, and does not, authorise social relationships that proceed in defiance of the equal standing and the autonomy of the person subject to discrimination.25 The law of fair housing is by no means the only example for private law’s compliance with the injunction of just relationships. There are quite a few other manifestations of this underlying commitment, both within property law (such as the law of public accommodations or the fair use doctrine in copyright)26 and outside property law (think about the law of workplace accommodation).27 A particularly revealing example comes from the way

23 See Dagan, Property (n 1) pt III; H Dagan, ‘Property’s Structural Pluralism: On Autonomy, the Rule of Law, and the Role of Blackstonian Ownership’ (2014) 3 Brigham-Kanner Property Rights Conference Journal 27. 24 See Dagan and Heller (n 1). 25 See Dagan, Property (n 1) ch 2. 26 ibid 48–52. 27 See Dagan and Dorfman (n 1). See also below text accompanying nn 78–79. There are numerous other doctrines of private law—including the veteran common law rules that help solve collective action problems or oblige recipients of mistaken payments to reverse mistakes for which they have no responsibility—which cannot plausibly be accounted for by the libertarian conception of private law, and seem straightforward implications of the injunction of reciprocal respect to self-determination and substantive equality.

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accident law addresses people’s differing competencies to constrain risky conduct in cases of negligent infliction of loss to life and limb. Overlooking the victim’s special makeup in prescribing our interpersonal duties—as the traditional conception of private law implies28—is incompatible with an ideal of relating as genuine equals and with respecting one of freedom’s most basic ingredients: the interest in staying alive and physically well in the face of the risky conduct. Fortunately, current law by and large rejects this approach and reflects, instead, the injunction of relational justice that the duty of care owed by the injurer to the victim should be partially measured by the latter’s sensibility. The injurer must be (and is) responsible to take extra care to protect the disabled person from her dangerous activity.29

III. Internal Challenges Private law does not always—let alone fully—comply with the prescriptions of structural pluralism and interpersonal accommodation. But rather than undermining the autonomybased theory of private law outlined above, such blemishes highlight its significance as a source of internal critique that can help push private law to better conform to its normative promise. These blemishes highlight, in other words, the challenges of private law to which we can now (finally) turn.30

A. Missing Frameworks Ensuring sufficient diversity of valuable contract types and property institutions is a core feature, benefit, and indeed obligation of a private law regime committed to individual autonomy. Autonomy theories of private law—even of contract (including Raz’s)—have missed the crucial role of this obligation, maybe because they constricted their view of contract down to the symmetrical and discrete arm’s-length exchange.31 If one takes the contribution of contract and property to autonomy seriously, then private law theory must celebrate the multiplicity of contract types and property institutions, rather than suppress them (as variations on a common theme) or marginalise them (as peripheral exceptions to a robust core). Multiplicity per se is not enough. What is particularly significant to choice, and thus to autonomy, is the multiplicity of alternatives within any given sphere of interpersonal activity. A liberal private law must include sufficiently distinct contract types and property

28

See J Coleman and A Ripstein, ‘Mischief and Misfortune’ (1995) 41 McGill Law Journal 91. Dagan and Dorfman (n 1); A Dorfman, ‘Negligence and Accommodation’ (2016), available at http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=2543262. 30 I do not address the question of which legal institution should discharge of these challenges. The institutional issue is distinct from the substantive one—see above n 4—and it requires a necessarily contextual analysis of the comparative advantages, in terms of both competence and accountability, of courts, legislatures, and other potential legal actors for each of the tasks at hand. Cf H Dagan, ‘Judges and Property’ in S Balganesh (ed), Intellectual Property and the Common Law (New York, Cambridge University Press, 2013) 17. 31 See H Dagan, ‘Autonomy, Pluralism, and Contract Law Theory’ (2013) 76 Law and Contemporary Problems 19. 29 See

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institutions for the diverse social settings and economic functions in which law facilitates interpersonal interactions. Only such a rich repertoire can enable people to freely choose their own ends, principles, forms of life, and associations.

(i) Innovative Contract Types Contract law nicely demonstrates the reformist potential of this liberal obligation to provide intra-sphere diversity. By and large, modern contract law complies with this prescription in the commercial sphere. In this sphere, powerful economic forces catalyse demand—legal entrepreneurs see value from one-off creation of new forms that are then standardised, replicated, and sometimes codified as discrete types—so the task of contract law can be mostly reactive.32 But as people’s ends move away from strict maximisation of economic surplus—that is, for most contracting—there is less reason to believe that market-driven contract types offer us what we need as free individuals. Thus, an autonomy-based contract law should prioritise settings where law’s enabling role can best support autonomy through new contracting practices.33 It is difficult to expect that legal systems would routinely invent new contract types. Indeed, carrying out the state’s obligation to enhance choice in such a top-down fashion is not necessarily desirable, given the comparative disadvantage of state institutions vis-à-vis contractual parties in coming up with appropriate innovations. For this reason, at least in typical cases, the carriers of contract law need not (maybe even should not) engage in innovative design. They should, however, proactively look out for innovations—such as those based on minority views and utopian theories—that have some traction but would fail if left to people’s own devices due to predictable market failures of various kinds. The state should be favourably predisposed to such innovations even absent significant apparent demand insofar as these outliers have the potential to add valuable options for human flourishing that significantly broaden people’s choices. Take the sphere of employment. The prevailing structure of employment contracts offers a binaric choice between employee and independent contractor status. But emerging new forms on the ground—such as on-demand workers who find job assignments via apps (like Uber) or workers seeking the creation of specifically designated worker co-ops—may call for additional categories and thus additional choice. There are also other possibilities that diverge even further from the existing employment landscape. For example, law can be instrumental in facilitating job-sharing arrangements that stabilise defaults regarding responsibility, attribution, decision-making mechanisms, time division, sharing space and equipment, and availability on off days. By the same token, an autonomy-based approach to employment contracts would suggest that instead of choosing between the ‘at will’ and the ‘for cause’ regimes as defaults, states would be advised to promulgate two parallel employment types, so that employers would need to opt in to one or the other. Pursuing this prescription of securing such intra-sphere multiplicity is important not only in the employment sphere. It can also be invaluable in other spheres, such as home ownership. (Consider, for example, the benefits of providing ‘off-the-rack’ contractual 32 See R Gilson, C Sabel and R Scott, ‘Contract and Innovation: The Limited Role of Generalist Courts in the Evolution of Novel Contractual Forms’ (2013) 88 New York University Law Review 170. 33 See Dagan and Heller (n 1), on which the remainder of this subsection draws heavily.

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arrangements for the emerging insurance and financial products that allow home owners to share or offload the risk that the value of their home will decrease due to changes in the character of the neighbourhood or in the overall housing market.)34 But the structural pluralist agenda cannot contend with the intuitive appeal of these (or similar) suggestions. It requires a more systemic analysis. Such an inquiry raises—as Ori Aronson indicates—two interrelated questions: (1) ‘what is the “pluralistically optimal” amount of alternatives a state is required to (strive to) provide?’, and (2) ‘what is the “optimal” degree of variance the state should seek to maintain among the given alternatives?’35 Addressing these questions—which Aronson terms ‘the N question’ and ‘the ∆ question’—in the various spheres of contracting raises complex issues. To be sure, some initial propositions, on which the intuitive appeal of the above suggestions may lie, are possible. Thus, N should probably not get too big, lest people’s effective choice be curtailed by too many distinct alternatives;36 and Δ should not be too small, for an insignificant Δ implies that there is no meaningful intra-sphere multiplicity. But these propositions are quite minimal. A robust autonomy-enhancing research agenda requires a refocus of behavioural and institutional economics studies of contract law so as to more precisely explore the actual determinants of these variables in order to identify the optimal N and Δ for any sphere of contracting. Further research should also carefully consider other factors—such as market structure and political economy—that may require actively limiting multiplicity or at least guarding against its potential pitfalls.37 These (and similar) inquiries may also help reformers to decide which innovative contract types law should facilitate. A particularly complex challenge of such a process is to assess the meaning of long-term convergence notwithstanding the availability of multiple options: does it derive from the designers’ failure to create the appropriate contract types or to communicate properly their potential virtues to contracting parties? Or perhaps this suggests that choice is less important than they thought it to be in this sphere?38

(ii) A Residual (Well-Publicised) Category of Privately Tailored Property? An autonomy-based private law requires more than a rich variety of state-sponsored frameworks. Alongside this menu, it must offer a residual category of freestanding forms of interaction.39 Such a category allows autonomous individuals to reject the state’s favoured frameworks and decide for themselves how to arrange their interpersonal relationships; to ‘invent’ their own private forms of interaction.40

34

See, generally, L Fennell, ‘Homeownership 2.0’ (2008) 102 Northwestern University Law Review 1047. O Aronson, ‘The How Many Question: An Institutionalist Guide to Pluralism’ in L Batnitzky and H Dagan (eds), Institutionalizing Rights and Religion: Competing Supremacies (New York, Cambridge University Press, 2017) forthcoming. 36 See, generally, B Schwartz, The Paradox of Choice: Why More is Less (New York, HarperCollins Publishers, 2004). 37 See Dagan and Heller (n 1). 38 See Aronson (n 35). 39 Even Roman law (eventually) recognised not only ‘nominate’ but also ‘innominate’ contracts. See R Zimmermann, The Law of Obligations: Roman Foundations of the Civil Tradition (Oxford, Clarendon Press, 1990) 534–35. 40 See M Hesselink, ‘Private Law Principles, Pluralism and Perfectionism’ in U Bernitz, X Groussot and F Schulyok (eds), General Principles of EU Law and European Private Law (The Hague, Kluwer Law International, 2013) 21. 35

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On its face, contract law already complies with this prescription. But it is unclear whether what is currently termed ‘general’ contract law is properly tailored for the task. A residual law of freestanding contracting should be shaped around the obligation to take idiosyncrasy seriously, rather than piggybacking on the arm’s-length commercial contract that the Willistonian project imagined as the default. A residual contract law that can serve as such a liberating device should be as open as possible to idiosyncratic choices, and thus arguably ‘emptier’. This probably means that rather than setting up majoritarian defaults, it should be guided by an effort to set aside such conventional preconceptions and offer as many checklists as possible, thus allowing people to check an option or enter their own.41 This possible modification to contract law is not insignificant. But the challenge an autonomy-based understanding of private law poses to property is even more demanding, because property law typically offers only standardised forms of property. Indeed, although the numerus clausus principle is not universal, it is a typical feature of many postfeudal property systems,42 and its prevailing understanding stands in sharp contrast to the prescription of offering a sufficiently salient and vibrant residual category of private arrangement. To be sure, an autonomy-based understanding of private law fully justifies the numerus clausus principle insofar as it is understood as a means of facilitating stable categories of state-supported property institutions and standardising their incidents. In line with the notion of structural pluralism, such standardised property institutions consolidate people’s expectations so that they know what they are getting into when entering, for example, a joint tenancy, a common interest community, or, for that matter, a marriage and furthermore express the law’s normative ideals for these core types of human relationships. Both roles—consolidating expectations and expressing ideal forms of relationships—require some measure of stability; and to form effective frameworks of social interaction and cooperation, property law can recognise a necessarily limited number of categories of relationships and resources. A set of fairly precise rules and informed (rather than openended) standards must govern each property institution to enable people to predict the consequences of various future contingencies and to plan and structure their lives accordingly.43 The conventional understanding of the numerus clausus principle, however, goes further than that—it stands for the proposition that ‘property rights exist [only] in a fixed number of forms’,44 so that private arrangements can enjoy the status of property only if they are pigeonholed into the menu of state-recognised property forms. But even the most sophisticated attempts to justify this further dimension of the numerus clausus 41

See Dagan and Heller (n 1). T Merrill and H Smith, ‘Optimal Standardization in the Law of Property: The Numerus Clausus Principle’ (2000) 110 Yale Law Journal 1, 59, who present the numerus clausus principle as ‘universal’, and D Lewinsohn-Zamir, ‘The Objectivity of Well-Being and the Objectives of Property Law’ (2003) 78 New York University Law Review 1669, 1733, who indicates that some modern legal systems ‘have opted for an “open-list” principle of property rights.’ For a recent account of how one such jurisdiction provides certainty and how another, in which numerus clausus does apply, struggles for flexibility, see H Mostrett and L Verstappen, ‘Practical Approaches to the Numerus Clausus of Land Rights: How Legal Professionals in South Africa and the Netherlands deal with Certainty and Flexibility in Property Law’ in W Barr (ed) Modern Studies in Property Law, vol 8 (Oxford, Hart Publishing, 2015) 353. 43 See Dagan, Reconstructing American Legal Realism & Rethinking Private Law Theory (n 10) ch 9. 44 See Merrill and Smith (n 42) 3. 42 See

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rinciple fail. Thus, although ostensibly it seems to be an anti-fragmentation device, p needed for addressing anticommons difficulties,45 there are ‘much more direct and costeffective methods of preventing excess fragmentation of property rights’, and in any event ‘the size of parcels or the number of co-owners generate’ much more pressing fragmentation problems.46 Similarly unconvincing is the notion that the numerus clausus principle serves to reduce the communication costs of third parties who need to determine the attributes of property rights in order to avoid violating them or to acquire them from present owners.47 The relevant legitimate concern of such third parties is the verification of ownership of rights; this means that—unlike contract—property law must provide mechanisms for giving effective notice about the partitioning of property rights in a given asset among several people;48 but while the way information is structured affects the costs of processing it,49 this marginal effect cannot plausibly justify the onerous numerus clausus principle. Whereas an autonomy-based theory of private law celebrates law’s traditional facilitation of property institutions along the lines of the structural pluralist injunction, it must rethink the traditional hostility towards tailor-made property rights. To be sure, an autonomy-based law is perfectly justified in proscribing arrangements insofar as they entail negative external effects—both social (eg segregation) and economic (eg fragmentation)—or impinge upon individual rights (either those of the parties themselves or of third parties). But these are concerns that are, as they should be, addressed even respecting state-sponsored property institutions.50 They can, and should, similarly limit the ability of people to tailor their property arrangements in accordance with the way they prefer to shape their interpersonal relationships. But they do not establish an a priori obstacle to such private orderings. Indeed, people may legitimately want to accommodate their property arrangements to their particular needs and circumstances. In a liberal society, citizens should be free to reject many of law’s messages and to repudiate at least some of the values recommended by the state. An autonomy-based conception of private law must facilitate, rather than block, this option. This means that to fully justify the numerus clausus principle, property law should also include (as contract law does) a residual category of private arrangement in addition to the state-sponsored property institutions. Designing such a category and making it sufficiently salient and vibrant is not a trivial task, but two guidelines seem straightforward: (1) the significance to people’s autonomy of opening up this option justifies investing some technological effort in developing effective means to provide notice to third parties as to the content of such an arrangement; and (2) the risks and costs of possible misunderstandings due to its idiosyncrasy or ambiguity should be allocated to the parties of such an arrangement, rather than to these third parties.

45

See M Heller, ‘The Boundaries of Private Property’ (1999) 108 Yale Law Journal 1163, 1165–66. See Merrill and Smith (n 42) 52–53. 47 ibid 26–34. 48 H Hansmann and R Kraakman, ‘Property, Contract, and Verification: The Numerus Clausus Problem and the Divisibility of Rights’ (2002) 31 Journal of Legal Studies 373, 374–75, 380–84, 416–17, 419. See also, eg G Robinson, ‘Personal Property Servitudes (2004) 71 University of Chicago Law Review 1449, 1484–88. 49 See Merrill and Smith (n 42) 33, 43–45. 50 See, eg, Restatement (Third) of Servitudes §3 (ALI, 2000). 46

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B. Just Practices The main challenge posed to private law by the prescription of structural pluralism is indeed that of looking for missing frameworks, both specific alternatives for any given sphere of interaction and the residual category of private arrangement just mentioned. It is time to turn to the other prescription of an autonomy-based private law theory, that of interpersonal accommodation. As noted, significant parts of private law already comply with this obligation of reciprocal interpersonal recognition. But taking it seriously requires a critical investigation of doctrines and rules that do not. The existence of some gaps between current private law and the demands of just relationships should not be surprising. It reflects not only the usual feature of legal theories, like the one articulated in these pages, which seek to flesh out implicit normative underpinnings of a set of legal doctrines. Rather, these gaps also derive from the fact that the obligation of interpersonal accommodation is rarely, if ever, the sole value at hand. Indeed, people’s robust interdependence, which gives rise to this obligation, typically manifests itself in social practices, that is forms of orderly human activity. Each of these practices is composed of events, actions, and attitudes that are understood to either exemplify, embody, or constitute a substantive good or goods. Because every practice is supposed to be rationally conducive to the pursuit of its underlying good(s), each such practice is typically informative regarding the contents of the terms of interaction in the particular context. To be sure, in many cases—the easy cases, which fully conform to the interpersonal accommodation obligation—these considerations simply fine-tune this abstract injunction by specifying, for example, the personal qualities that should be determinative in setting the terms of the particular interaction and how decisive they should be.51 The more challenging cases—my focus here—arise where the particular practice does not comply with the demands of relational justice. In these cases we must consider the existence, and ultimate strength, of countervailing values. Where the legal infrastructure of a particular social practice is inconsistent with relational justice, private law needs to decide whether the values underlying that practice defy the demands of interpersonal accommodation. It can abolish the practice as relationally unjust, or reinstate it notwithstanding this deficiency; at times, it may also reform it by making it congruent with relational justice. Some relationally unjust practices seem beyond rehabilitation; their repressive nature leaves no moral choice but to discard them altogether. Slavery is an obvious example of a practice indisputably undeserving of a charitable transformation. But in small-scale instances of flatly illiberal social practices, the option of transformation is quite attractive— a successful reconciliation of a social practice with the demands of relational justice can dissolve the difficulty of conflict of values. Consider the history of the traditional ideal of a marital community as a locus of sharing and trust. Marriage law, including marital property law, has a long, persistent, and shameful tradition in which this ideal has been abused to shield subordinating patriarchal structures. Patriarchal marriages allow men to capture a disproportionately high share of the 51 See Dagan and Dorfman (n 1). Thus, for example, our transportation practices imply the significance of qualities associated with both the ability to decide where and when to cross the street and the competency to respond to the surrounding environment, as well as the irrelevance of potential victims’ political sensibilities.

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benefits of marriage and to bear a disproportionately low share of its costs: ‘When we look seriously at the distribution between husbands and wives of such critical social goods as work (paid and unpaid), power, prestige, self-esteem, opportunities for self-development, and both physical and economic security, we find socially constructed inequalities between them, right down the list.’52 People may, of course, engage in many joint enterprises where equality is not necessary. Joint owners in a business, for instance, may divide the ownership interest 70-30 without raising any alarm. But it would be perverse to conceive of a marriage of this sort, where one spouse has a recognised controlling interest in the property that partially constitutes the marriage, and, correspondingly, in marital decisions. One reason for this difference is that marriage is a more pervasive engagement than any other enterprise. Disparity in the control of marital property moves beyond simple inequality—which an individual may rightly choose as a means to other ends—to subordination, which systematically denies the importance of whatever ends that individual chooses.53 Some commentators have proposed a radical solution—giving up on marriage altogether.54 There are valid pragmatic reasons to resist this option. Because of the intense long-term fusion of marriage, it is one of the few relationships that can produce the communal goods of interpersonal trust, caring, and commitment. For this reason, attempts to erase marriage are likely to be futile: people will continue to partner despite the lack of legal marriage, but will do so without the protections against subordination that the law can provide.55 There are also principled reasons for the option of transforming, rather than eradicating marriage; these reasons are more important for our purposes. The principled reasons challenge the purported conflict between non-subordination—which is an obvious component of the maxim of relational justice—and the communal goods of marriage. The explanation for this is quite straightforward: an oppressive marriage is not only unjust in that it deprives the subordinated spouse of both a voice and a viable option of exit, and thus becomes a threat to a spouse’s basic personhood; it also precludes realisation of intimacy, caring, commitment, emotional attachment and self-identification. Because ‘[o]ne committed and loving partner cannot unequivocally rejoice in his life with his partner if he knows that the other finds the relationship oppressive in some way’,56 an inegalitarian marriage deprives both spouses of the unique collective goods of marriage; it renders marriage an anathema to genuine community. Reforming marriage law so that it complies with the obligations of relational justice would thus also facilitate its compliance with its communitarian DNA. To do so, marriage must be reconstructed such that the marital community is bound by a commitment to equality as non-subordination and the various doctrines governing marriage be adjusted to this revitalised understanding. Pursuing this is a complex task, which I have attempted to undertake elsewhere.57 For our purposes it is enough

52

See S Okin, Justice, Gender, and the Family (New York, Basic Books, 1989) 136. See Dagan, Property (n 1) 206. 54 See M Fineman, The Neutered Mother, the Sexual Family and Other Twentieth Century Tragedies (New York, Routledge, 1995) 228–30. 55 See A Wax, ‘Bargaining in the Shadow of the Market: Is There a Future for Egalitarian Marriage?’ (1998) 84 Virginia Law Review 509, 636–37. 56 See E Anderson, Value in Ethics and Economics (Cambridge MA, Harvard University Press, 1993) 151. 57 See Dagan, Property (n 1) ch 9 (reconceptualising marriage as an egalitarian liberal community and discussing in some detail the implications on marital property law). 53

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to point to the vivid illustration it provides for a (relatively) happy reconciliation between a nonconforming social practice and the demands of relational justice.58 There are also really difficult cases. In these cases there is a genuine conflict between the demands of relational justice and the substantive good a particular social practice is understood to embody that is typified by a principled insensitivity to interpersonal accommodation, which may, nonetheless, be grounded on perfectly valid liberal foundations. Thus, a robust practice of freedom of expression can explain granting citizens the privilege to ridicule and even harm others, including an almost complete disregard of the latter’s personal qualities, which is to say their judgments, character traits, and personal circumstances (such as race).59 Arguably, a structurally similar observation can be made with respect to some of the economic harms generated by moderately regulated economic competition amongst market participants.60 To be sure, these observations do not imply that the value of free speech, or of economic competition, warrants absolute dominion over the demands of relational justice. After all, the tort of defamation and other criminal prohibitions (eg on hate speech) may certainly be justified on the basis of relational justice, and certain forms of intentional interference with one’s economic interests can likewise give rise to tort liability on account of the demands of relational justice (among other accounts). But these examples illustrate that there can be liberal practices whose animating good brings pressure to bear against the normative commitments that generally inform relationally just terms of interaction. These and similar hard cases61 raise difficult normative questions that can be properly determined only by reference to an overall theory of justice, rather than relational justice alone.

C. Private-Public Hybridity I turn now to the third challenge of private law: coordinating its efforts of securing and facilitating interpersonal relationships premised on reciprocal respect to self-authorship with public law. This challenge may seem misplaced, maybe even objectionable, to private law theorists who perceive the impetus of this enterprise in ascertaining the necessary and sufficient features that separate private law from public law. The most ambitious position along these lines is taken by Kantian authors who insist that these are dichotomous and mutually exclusive categories, due to both their normative contents and the distinctive legal forms in which they are instantiated.62 Civil recourse theory joins forces to the separation

58 For a similar exercise in another, particularly timely, context, see J Singer, ‘We Don’t Serve Your Kind Here: Public Accommodations and the Mark of Sodom’ (2015) 95 Boston University Law Review 929. 59 See, for example, Snyder v Phelps 131 S Ct 1207 (2011), where the Supreme Court revoked damages for intentional infliction of emotional distress caused by an undeniably harsh and harmful speech. 60 See S Perry, ‘Protected Interests and Undertakings in the Law of Negligence’ (1992) 42 University of Toronto Law Journal 247, 265. 61 Another example relates to the scope of accommodation in social practices that are organised as part of the infrastructure which sustains meaningful (say, religious or cultural) communities, since a community requires some demarcation from broader society and, thus, some measure of practical and symbolic exclusionism. The duty to accommodate protected classes whose personal qualities are the outcome of chance cannot be qualified by such concerns; yet intricate questions may arise regarding qualities that are subject to personal choice, such as religion and familial status. 62 See Weinrib (n 6); Ripstein (n 6).

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endeavour, but since it finds this position overly ambitious, it seeks to isolate thinner, form-based characteristics of private law around the private entitlement to redress.63 In sharp contrast to these and similar positions, the autonomy-based theory of private law sees no intrinsic value in the sheer separation of private law from public law. Rather, its point is to distil the potential irreplaceable value of private law, which is worth retaining. This value lies, of course, in conceptualising our horizontal relationships as ones between substantively free and equal persons; private law is intrinsically valuable when its doctrines construct ideal frameworks of respectful interaction among self-determining individuals. This means, as I have argued in this chapter, that redeeming the intrinsic value of private law requires to embrace the same commitments—to individual self-determination and substantive equality—that inform a liberal public law. Indeed, critics of the public/private distinction are not wrong in disavowing the traditional (that is: private law libertarian) conception of private law. Rather, they are misguided in erasing the idea of a private law, and thus subordinating the social to the public. So the mission of an autonomy-based account of private law is not to eliminate all public concerns from private law but, rather, to refine the interpersonal concerns standing at the moral centre of private law. This means that private law need not shy from recruiting public law to provide it with a regulatory infrastructure that may be required in order for it to better fulfil its horizontal tasks. It also implies that rather than resisting the influence of our public commitments (that is: of values such as distributive justice, democratic citizenship, or aggregate welfare), the challenge of a genuinely liberal private law is to respond to the maxim of just relationships, while being sensitive to these important public concerns. Both lessons suggest that what makes private law importantly distinctive is the ideal of horizontal relationships structured around reciprocal respect to self-determination, rather than the exclusion of any other normative commitments or the specific legal mechanisms for addressing deviations from this ideal, be they the familiar one-to-one litigation or otherwise.64

(i) Contract Types and Regulation Modern contract law provides an important example for the potential significance of a supporting public law infrastructure. To be sure, by constructing a rich variety of types contract law already performs an indispensable autonomy-enhancing role of facilitating our ability legitimately to enlist others to various projects, both instrumental and communitarian. But traditional contract law cannot always, or even typically, do this work on its own. Indeed, in order to flourish, many contract types require some regulatory support. 63 See J Goldberg and B Zipursky, ‘Civil Recourse Defended: A Reply to Posner, Calabresi, Rustad, Chamallas, and Robinette’ (2013) 88 Indiana Law Journal 569, 573. See also B Zipursky, ‘The Philosophy of Private Law’ in J Coleman, K Himma, and S Shapiro (eds), The Oxford Handbook of Jurisprudence and Philosophy of Law (New York, Oxford University Press, 2002) 623. 64 Both lessons imply, in other words, that these legal hybrids are not ‘merely temporary creatures, awaiting their extinctions through novel ways of legal conceptualizing and mapping of our legal universe.’ Contra K Tuori, ‘On Legal Hybrids’ in H-W Micklitz and Y Svetiev (eds), A Self-Sufficient European Private Law—A viable Concept? (Fiesole, European University Institute Working Papers, 2012) 67. In this they nicely fit the legal realist programme of functional taxonomy that allows some degree of overlap between categories. See Dagan, Reconstructing American Legal Realism & Rethinking Private Law Theory (n 10) ch 6.

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Consider consumer transactions, the type of contract into which most of us enter on a daily basis in running our ordinary way of life. Consumer contract law—comprised of a specific set of rules dealing with issues like disclosure, cancellation, and warranty, which all go far beyond the protective measures anticipated by ‘classical’ contract law65—plays a crucial role in making these contracts viable. But consumer protection law includes not only contract rules that apply to the interacting parties. It also contains a thick layer of measures administered at both state and federal levels. States’ Unfair and Deceptive Practices Acts or similar legislation regulate, among o thers, various types of misleading statements and representations as well as other deceptive acts and practices.66 In addition to establishing a private right of action, these laws entrust government officials—typically the state Attorney-General’s office; in some cases also municipal consumer protection offices at the city and county level—with the authority to administer and enforce these rules.67 Likewise, the Federal Trade Commission is quite active in regulating consumer transactions, taking actions in areas like misleading advertising, coercive or deceptive sales techniques, and marketing campaigns that prey on the credulity of the young, the elderly, or the infirm.68 And there are of course additional agencies, such as the Food and Drug Administration, or the newly formed Consumer Financial Protection Bureau,69 which similarly regulate specific industries in ways that are also crucial for the customers of these particular industries. These and many other administrative apparatuses—think antitrust, securities regulation, or regulation of credit and debt collection70—seek to target systemic market failures that can hardly be addressed on the transactional level.71 They also provide (when they work well) the infrastructure for a secure marketplace within which effective choices can be made.72 In this way, these public law devices comply with the public responsibility of facilitating our private interactions. Significant as they are, they supplement, rather than supplant, the contract rules of consumer transactions (or other contract types).73 65 See, respectively, O Bar-Gill, Seduction by Contract: Law, Economics, and Psychology in Consumer Markets (Oxford, Oxford University Press, 2012); O Ben-Shahar and E Posner, ‘The Right to Withdraw in Contract Law’ (2011) 40 Journal of Legal Studies 115; A Schwartz and L Wilde, ‘Imperfect Information in Markets for Contract Terms: The Examples of Warranties and Security Interests’ (1983) 69 Virginia Law Review 1387. 66 See D Pridgen and R Alderman, Consumer Protection and the Law (New York, Clark Boardman Callaghan, 2014) §§ 3:1, 3:15. 67 See ibid §§ 7:1 (role of state Attorney-Generals), 7:28 (municipal enforcement). 68 See ibid 11:1 (misleading advertising), 9:10 (coercive sales techniques), 10:1 (deceptive trade practices), 9:11 (commercial exploitation of children, elderly, and infirm). For an overview of the FTC’s efforts to regulate advertising to children, see generally J Beales III, ‘Advertising to Kids and the FTC: A Regulatory Retrospective That Advises the Present’ (2004) 12 George Mason Law Review 873. 69 See ‘What does FDA do?’ (Food and Drug Administration), www.fda.gov/AboutFDA/Transparency/Basics/ default.htm; ‘About Us’, Consumer Finance Protection Bureau, www.consumerfinance.gov/the-bureau/. 70 See 15 USC §§ 1-38 (2013) (antitrust regulation); 15 USC §§ 77a–78lll (2013) (securities regulation); 15 USC §§ 1601-1693(r) (2013) (consumer credit protection). 71 See, eg, S Breyer, Regulation and its Reform (Cambridge MA, Harvard University Press, 1982) 7–8. 72 See J Singer, No Freedom without Regulation: The Hidden Lesson of the Subprime Crisis (New Haven CT, Yale University Press, 2015) 64. 73 A somewhat similar example comes from the context of child support, where the primary responsibility should be private and relational, but fulfilling the parallel public responsibility requires that the state assist in enforcing the relational responsibilities or even provide some insurance against non-compliance with them. See generally J Millar and A Warman, Family Obligations in Europe (London, Family Policy Studies Centre, 1996) 24; R Lerman and E Sorensen, ‘Child Support: Interactions between Private and Public Transfers’ in R Moffitt (ed), Means-Tested Transfer Programs in the United States (Chicago IL, University of Chicago Press, 2003) 587.

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(ii) Addressing Important Public Concerns Hybrid arrangements of this sort not only represent public law’s support of private law’s horizontal mission; at times, they represent private law’s accommodation of important public law concerns. Indeed, although the distinctive intrinsic value of private law lies in its pursuit of relational justice, private law should not be oblivious to the responsibilities of the liberal state to secure distributive justice, democratic citizenship, and aggregate welfare.74 Quite the contrary, it should contend with possible tensions between the essentially interpersonal focus of private law and the requirements of fair distribution, equal citizenship, or efficiency and try to adapt its doctrinal framework accordingly.75 Such an adjustment is often possible because a duty of accommodation grounded in relational justice is a range property:76 it need not entail an either/or trade-off, but rather allow a restriction of individuals’ responsibility by shifting some of the burden onto public law.77 Consider employers’ duties of accommodation. Relational justice requires that an employer would not be entitled to turn down a job candidate due to personal qualities such as disability, familial status, and religious affiliation. This obligation can impose non-trivial costs, such as the construction of an accessible workplace, or the obligation to accommodate dietary requirements, holy days, or dress codes. Considerations of both distributive justice and democratic citizenship imply that some of these costs are society’s to bear.78 The law governing work-related accommodation nicely responds to this challenge. It exempts employers from making accommodation arrangements that exceed a determined reasonable level and, thus, impose undue hardship which would have placed them under a threat of self-effacement (which self-defeats relational justice); in other cases—those which are more important for our purposes—it takes the form of a hybrid that both insists upon a relational duty of accommodation (as opposed to, say, a sheer incentive to those who accommodate) and offers ameliorative arrangements like tax incentives or other publicly funded benefits that address these public concerns.79 A similar analysis can justify regulatory frameworks—such as workers’ compensation schemes, or the New Zealand public insurance scheme—that collectivise some parts of 74 By the same token, in some contexts a private law framework can be legitimately enlisted to serve irreducibly public values, whereby the state commandeers the support of private individuals to enhance collective goals. The incentives set by copyright law and patent law, for example, can (arguably) be understood in terms of delegating our collective interest in fostering research and development to private individuals and firms. When private bodies and private roles are thus publicly enlisted, privatisation-or-collectivisation debates can properly revolve around considerations of comparative institutional competence. But as long as these public values are promoted through private law doctrines, it is still important to evaluate them not only in terms of their performance as regulatory devices, but also in terms of the intrinsic ideals of private law, namely: sustaining, facilitating, and upholding the liberal state’s commitments to relational justice. 75 Moreover, because there may be some overlap between the public responsibilities to ensure self-determination and substantive equality and the private obligations that relational justice entails, private law should beware of diluting the public responsibilities. 76 The notion of range property is borrowed from J Rawls, A Theory of Justice (Cambridge MA, Harvard University Press, 1971) 508. 77 See Dagan and Dorfman (n 1), on which the remainder of this section heavily draws. 78 See S Shiffrin, ‘Egalitarianism, Choice-Sensitivity, and Accommodation’ in R Wallace and others (eds), Reason and Value: Themes from the Moral Philosophy of Joseph Raz (Oxford, Clarendon Press, 2004) 270, 297, 302. It is less important to specify here the metric by which the burden should be redistributed across members of society. 79 See, eg, Americans with Disabilities Act of 1990 42 USC § 12112(b)(5)A (2012). Another, perhaps even better solution (available in other jurisdictions) is to use direct subsidies. See E Zamir and B Medina, Law, Economics, and Morality (New York, Oxford University Press, 2010) 255.

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traditional tort law which turn out to be suboptimal in terms of some public value, such as distributive justice, social welfare, or access to the private law institutions of justice, for that matter. Tort theorists who are guided by the separation thesis tend to treat such schemes as exemplifying a radical transition from a legal order grounded in private law to one premised exclusively in public law.80 But this is an overstatement. Whereas the law of negligence is a powerful vehicle for sustaining relationally just terms of interaction in the context of accidental harm to life and limb, it is not essential for this task. What is essential from the perspective of relational justice is that the injurer be subject to an obligatory reason to accommodate, within limits, the person who the victim actually is. Therefore, relational justice need not object to these alternative schemes as long as they include legal doctrines— such as injunctive relief and punitive damages for intentional misconduct—that ensure compliance with the reason for discharging the accommodative duty of care.81

IV. Concluding Remarks For too long, most approaches to the study of private law have been divided into two conflicting, but similarly disappointing, positions. Both traditionalists and their critics share the same understanding of private law as structured around a commitment to individual independence and formal equality. But the facts of interdependence and personal difference as well as the crucial role of law in sustaining our private law institutions imply that this conception betrays the most fundamental commitments of a liberal polity to individual self-determination (not merely independence) and thus to substantive (not just formal) equality. Fortunately, this traditional (libertarian) conception of private law is also quite removed from the actual manifestations of private law in contemporary liberal society. A genuinely liberal conception of private law understands its doctrines as ideal frameworks for respectful interaction between self-determining individuals, which are indispensable for a society where all recognise one another as genuinely free and equal agents. This understanding accepts the primary responsibility of public law to collective values like distributive justice, democratic equality, or aggregate welfare. But it insists that the traditional division of labour between public and private law in which the sole responsibility of individuals is to pursue their ends using their fair share is deeply misguided. Private law—the law of our interpersonal relationships as individuals, rather than citizens or patients of the welfare state—is responsible for ensuring that in these horizontal interactions we respect each other’s right to self-determination and thus to substantive equality. This responsibility becomes particularly acute in a transnational era which is increasingly typified by interaction between individuals who are not compatriots and may thus not enjoy the same starting point. I believe that the autonomy-based understanding of private law discussed in these pages can helpfully inform the substantive law governing interpersonal interactions across 80 See Brudner with Nadler (n 2) 270; R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 324; J Goldberg and B Zipursky, The Oxford Introductions to US Law: Torts (Oxford, Oxford University Press, 2010) 267, 394–95. 81 See Dagan and Dorfman (n 1).

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national borders. This significant endeavour of devising the tenets of what can be called international private law cannot be addressed here.82 But even if we set it—and further challenges83—aside, the research agenda for an autonomy-based private law is rich and exciting. In order for private law to better conform to its normative promise, its carriers must proactively seek to enrich the repertoire of sufficiently distinctive contract types and property forms it offers and furthermore design sufficiently salient and vibrant residual categories for both contract and property. They should also carefully scrutinise the prevailing law in order to examine doctrines that deviate from the obligation of interpersonal accommodation and decide whether to abolish, reform, or reinstate these doctrines given the normative weight of their underlying commitments. Finally, a reinvigorated private law needs to carefully explore the ways it can recruit public law to better secure its horizontal tasks as well as the means by which it can properly respond to public concerns while upholding its intrinsic virtue as the guardian of relational justice.

82 For a preliminary attempt, see H Dagan and A Dorfman, ‘The Human Right to Private Property’ (2017) 18 Theoretical Inquiries in Law forthcoming. 83 One important challenge to any private law theory is to consider if and how it should be refined in contexts in which corporate or governmental bodies, rather than natural persons, are involved in horizontal dealings. Cases involving corporations are particularly intriguing, because at bottom a corporation is a private law device that facilitates, in line with the prescription of structural pluralism, a specific set of autonomy-enhancing horizontal interactions. Figuring out the implications of this rudimentary understanding of the corporate form—and considering how it can be reconciled with a collectivist conceptualisation of corporations as means for commandeering private resources for the efficient production of public goods—is a major task, which requires a full-blown theory of corporation.

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5 ‘The Steaming Lungs of a Pigeon’: Predicting the Direction of Australian Contract Law in the Next 25 Years WARREN SWAIN

Then there are fortune-tellers, Armenians, Syrians, Who’ll pry out the steaming lungs of a pigeon, predict A young lover for the lady, or a good fat inheritance For some childless millionaire. They’ll probe a chicken’s Bosom, unravel the guts of a puppy: sometimes They even slaughter a child.1

Fortune tellers are an easy target for scorn.2 Legal fortune tellers should not be exempt from ridicule. Anyone who is brave enough to gaze into the legal future runs the risk of looking a fool in 10, 20, or if they are lucky, 50 years’ time. The further one gazes, the greater the risk. What follows are some modest observations on possible future directions for the law of contract in Australia over the next quarter of a century. In the absence of the ‘steaming lungs of a pigeon’, we have to look elsewhere for inspiration. One approach which is particularly appealing to a legal historian, is to look to the past, even the recent past, in order to make some informed guesses about the future.3 At the same time, we would do well to remember that history is not always a reliable guide. Things happen in ways that are unexpected, or gain an unpredictable momentum of their own. AJP Taylor, halfseriously, argued that the First World War occurred, less because the participants sat down and carefully worked out what to do, but more so because the nations involved became caught up by their own mobilisation plans.4 Legal accidents are never as catastrophic, but chance can often play a part. The original hearing of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd5 was abandoned after just one day, when Lord Radcliffe 1

P Green (trans), Juvenal, The Sixteen Satires (London, Penguin, 1974) 148. Sixteen Satires were thought to have been written between AD 110 and 130, see ibid 14. For further details, see G Highet, Juvenal the Satirist (Oxford, Oxford University Press, 1961). 3 Whether a genuinely scientific type of history is possible is more doubtful: RJ Evans, In Defence of History (London, Granta, 2000) 45–74. 4 ‘War by Time Table’ in AJP Taylor, From Boer War to the Cold War (London, Penguin, 1996) 116–81. 5 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL). 2 The

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was called away in order to chair an inquiry into the spy John Vassall.6 The first panel of Lords Radcliffe, Cohen, MacDermott, Jenkins and Guest, was replaced by another of Lords Reid, Morris, Hodson, Devlin and Pearce.7 It is impossible to be sure that the original panel would not have come to the same decision. There must be a strong possibility that it might not have. A good deal of fun can be had with counterfactual history.8 Suppose that Vassall had been posted to Canberra rather than Moscow, had not become drunk at a party, had not been photographed in compromising positions with young men, or that he had refused to be blackmailed in preference to a criminal conviction for homosexuality; that there had been no scandal and no inquiry. Perhaps in these circumstances what Tony Weir called the ‘judicial jamboree’ of Hedley Byrne9 might never have happened or—and this is more likely, given the spirit of the time—might have been postponed for another day. In any event, the only thing that can be safely predicted as far as the tort of negligence is concerned, is that there will be ‘a time to plant, and a time to pluck up that which is planted’. For most of the twentieth century, Australian contract law was a duller affair. English law remained a powerful influence. By the 1970s the old order was changing. The Trade Practices Act 1974 and the New South Wales Contracts Review Act, which followed in 1980, saw important departures from English law. The influence of the Privy Council on the High Court of Australia first declined and then was eliminated altogether.10 Around this time an attempt was made by academic writers to forge a distinctly Australian law of contract. The shift can be traced in a leading textbook. Near the beginning of the first Australian edition of Law of Contract by GH Cheshire and CHS Fifoot, published in 1966, there is a discussion of the history of English contract law.11 By the fifth edition of 1988, as if to emphasise the growing discordance with English contract law, the editors were quoting the Bush poet, Banjo Paterson.12 Perhaps symbolically, the historical introduction was moved to the back. Nine years later in the preface to the seventh edition, it was stated that: Through six editions it [the book] has continued to reflect the increasingly divergent paths taken by English and Australian law so that the Australian work, despite its title, has come to bear almost no resemblance to its English parent.13 6

Report of the Tribunal Appointed to Inquire into the Vassall Case and Related Matters (Cmnd 2009, 1962–63). the story, see L Blom-Cooper and G Drewry, ‘Towards a System of Administrative Law: The Reid and Wilberforce Era, 1945–82’ in L Blom-Cooper, B Dickson and G Drewry (eds), The Judicial House of Lords 1876–2009 (Oxford, Oxford University Press, 2009) 209, 214. 8 For an excellent example, see N Ferguson (ed), Virtual History: Alternatives and Counterfactuals (London, Picador, 1997). For some of the dangers in what might be called accidental counterfactual history, see M Lunney, ‘Counterfactuals and Corrective Justice: Legal History and Allan Beever’s Rediscovering the Law of Negligence’ (2009) 17 Torts Law Journal 219. 9 T Weir, ‘Errare Humanum Est’ in P Birks (ed), The Frontiers of Liability, vol 2 (Oxford, Oxford University Press, 1994) 103, 105. 10 Viro v R (1978) 141 CLR 88 (HCA); Australia Act 1986 (Cth). 11 J Starke and P Higgins, Law of Contract by GH Cheshire and CHS Fifoot, 1st edn (Sydney, Butterworths, 1966). This had first appeared in G Cheshire and C Fifoot, The Law of Contract (London, Butterworths, 1945) and was rewritten by AWB Simpson in the 10th English edition in 1981. 12 J Starke, N Seddon, M Ellinghaus, Cheshire and Fifoot Law of Contract, 5th edn (Sydney, Butterworths, 1988) 1.The quotation is taken from the poem, The Old Australian Ways: 7 For

‘The narrow ways of English folk Are not for such as we.’ 13 N Seddon, M Ellinghaus, Cheshire and Fifoot Law of Contract, 7th edn (Sydney, Butterworths, 1997) preface. The historical introduction becomes ch 26.

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During the 1980s and 1990s, a series of new contractual doctrines in the High Court of Australia, many of which were based on equitable reasoning, began to emerge.14 This is quite right and proper: tempora mutantur, nos et mutamur in illis. Despite these developments, major though they are, it is impossible to gloss over the fact that Australian contract law, in many respects, is still based on the English common law of contract. However, the relationship between the old and the new is rarely straightforward. Old ideas used inventively can even be used to promote reform and push the law in new directions.15 On other occasions, new ideas appear in a more strident form, nowhere more so than in the calls for a contract code.

I. Does Contractual Codification Have a Future in Australia? A Civilian-inspired law code for the state of Victoria was produced by Professor William Hearn,16 as long ago as the 1880s.17 It was the 1970s before the idea of a contract code began to be mentioned again.18 Forty years later Nicola Roxon, the then AttorneyGeneral, announced the publication of a discussion paper to explore the scope for reforming Australian contract law.19 After a consultation exercise,20 and a change of government, momentum on the project within government appears to have been lost. There remains support for codification from some business and consumer organisations.21 One supposed attraction of a code was also put forward by the brilliant, but reliably impractical Jeremy Bentham, two hundred years ago. He believed that a code would render the law intelligible to the layperson.22 The same idea may appeal to the next passing political opportunist, but the whole notion is unproven at best, charmingly naïve at worst.23

14

These include estoppel, unconscionable dealing, and mistake. is explored in a forthcoming paper: W Swain and Z George, ‘Legal History in the High Court of Australia’ (on file with the author). Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 provides a recent example. 16 ‘Hearn, William Edward (1826–1888)’ by J La Nauze, Australian Dictionary of National Biography; R Selleck, The Shop. The University of Melbourne 1850–1939 (Melbourne, University of Melbourne Press, 2003) 300–3. 17 A Castles, An Australian Legal History (Sydney, Law Book Co, 1990) 481–85; J M Bennett, ‘Historical Trends in Australian Law Reform’ (1969–1970) 9 University of Western Australia Law Review 211, 214–16. 18 Earlier arguments for reform include: J Starke, ‘A Restatement of the Australian Law of Contract as a First Step Towards an Australian Uniform Contract Code’ (1978) 49 Australian Law Journal 234; Victorian Law Reform Commission, An Australian Contract Code, Discussion Paper No 27 (1992). The authors of the Victorian report, Ellinghaus and Wright, have played an important role in the debate surrounding contract codification in Australia informed by an empirical study: M Ellinghaus and E Wright, Models of Contract Law: An Empirical Evaluation of Their Utility (Sydney, Themis Press, 2005). 19 Attorney-General’s Department (Cth), Improving Australia’s Law and Justice Framework: A Discussion Paper Exploring the Scope for Reforming Australian Contract Law (2012). Available on-line: www.ag.gov.au/ Consultations/Pages/ReviewofAustraliancontractlaw.aspx. 20 www.ag.gov.au/Consultations/Pages/SubmissionstotheReviewofAustralianContractLaw.aspx. 21 NSW Small Business Commissioner, Small Business Development Corporation, ibid. 22 P Schofield and J Harris (eds), Jeremy Bentham, ‘Legislator of the World’ Writings on Codification, Law and Education (Oxford, Oxford University Press, 1998); see also ‘Principles of a Civil Code’ in J Bowring (ed), The Works of Jeremy Bentham, vol 1 (Edinburgh, William Tait, 1859) 302. 23 For contrary views, see A Diamond, ‘Codification of the Law of Contract’ (1968) 31 MLR 361, 370–72; Sir G Palmer, ‘The Law Reform Enterprise: Evaluating the Past and Charting the Future’ (2015) 131 LQR 402, 412–13. 15 This

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Contract codification has its merits.24 Most contributors to a recent edited collection were attracted to the idea.25 A code would remove differences between states and territories in contract doctrine.26 It is sometimes said that it would force Australian lawyers to be more outward-looking.27 All Australian jurisdictions are already signatories to the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG may even fit commercial expectations more closely than domestic sales law,28 yet anecdotal evidence suggests that it is often excluded.29 The UNIDROIT Principles of International Commercial Contracts (UPICC)30 are also available. UPICC is exceptionally flexible.31 It takes account of the practices and usage of the parties.32 The merits of UPICC have been recognised in Australia, both on its own terms33 and as a possible model for reforming Australian contract law.34 As with the CISG, practitioners and parties remain wary.35 The evidence in other jurisdictions also confirms that lawyers and their clients feel safer with the familiar domestic regime.36 Even assuming a desire for internationalisation, many of these ends could be achieved by encouraging greater use of the existing CISG and UPICC.37 Other arguments in favour of a code are more tenuous. The idea that a code would make Australian contract law closer to that of major commercial partners, such as China, and promote trade is difficult to substantiate.38 It would require a codified, Australian law to ditch a doctrine so central to its existence as consideration: a large degree of substantive 24 For a good summary, see A Tettenborn, ‘Codifying Contracts—An Idea Whose Time has Come?’ (2014) 67 Current Legal Problems 273. 25 M Keyes and T Wilson (eds), Codifying Contract Law International and Consumer Law (Farnham, Ashgate, 2014). For a note of caution, see W Swain, ‘Review of Mary Keyes and Therese Wilson (eds), Codifying Contract Law International and Consumer Law Perspectives’ (2015) 131 LQR 499. 26 A committed Federalist may not even see this as a benefit. 27 For this argument, see M Keyes, ‘The Internationalisation of Contract Law’ in Keyes and Wilson (eds), (n 25) 15, 33–36. 28 L Nottage, ‘Who’s afraid of the Vienna Sales Convention (CISG)? A New Zealander’s view from Australia and Japan’ (2005) 36 Victoria University Wellington Law Review 815, 818–30. 29 ibid 836; Attorney-General’s Department (n 19) 15 [5.4], 17 [5.11]. For anecdotal evidence, see B Zeller (n 20); W Swain and N Gaskell (n 20); L Spagnolo, ‘The Last Outpost: Automatic CISG Opt-outs, Misapplications and the Costs of Ignoring the Vienna Sales Convention for Australian Lawyers’ (2009) 10 Melbourne Journal of International Law 141, 159–60. 30 There are differences between UNIDROIT and Australian contract law. The former does not require consideration. For a discussion of UNIDROIT from the perspective of the common law tradition, see M Furmston, ‘English View of the UNIDROIT Principles of International Commercial Contracts’ (1998) 3 Uniform Law Review n.s. 419. 31 Arts 1.1, 1.5. This again is no different from the position at common law under which the parties can modify or exclude general contract provisions, for example, through exclusion clauses, liquidated damages clauses, entire agreement clauses, contractual rights to terminate, and interpretation clauses. 32 Art 1.9. 33 P Finn, ‘Symposium Paper: The UNIDROIT Principles: An Australian Perspective’ (2010) 17 Australian International Law Journal 193, 196. 34 L Nottage, ‘Symposium Paper: Afterthoughts: International Commercial Contracts and Arbitration’ (2010) 17 Australian International Law Journal 197, 204. 35 Attorney-General’s Department (n 19) 17 [5.11]. 36 P Fitzgerald, ‘International Contracting Practices Survey Project: An Empirical Study of the Value and Utility of the United Nations Convention on the International Sale of Goods (CISG) and the Unidroit Principles of International Commercial Contracts to Practitioners, Jurists, and Legal Academics in the United States’ (2008–2009) 27 Journal of Law and Commerce 1. 37 D Robertson, ‘The International Harmonisation of Australian Contract Law’ (2012) 29 Journal of Contract Law 1. 38 Much the same arguments have been made for a unified European private law. The empirical evidence to support claims in that context is inconclusive at best: J Smits (ed), The Need for a European Contract Law: E mpirical

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armonisation would, in any case, be impossible to achieve.39 The suggestion that a code h would somehow encourage international parties to litigate in Australia is equally farfetched, once it is recognised that substantive law is just one factor in forum shopping.40 After all, the absence of a code can hardly be said to have hurt London as a litigation centre.41 Items on the wish-list of some contract code advocates, such as the imposition of a requirement of good faith, or a greater role for fairness more broadly, might just as easily drive away some businesses as attract them to litigate in Australia. If these issues are not sufficient by themselves to make it safe to predict that a contract code will not happen any time soon, then a final matter may be decisive. Drawing up law codes is almost always a difficult business.42 The problem in Australia is particularly acute. Even assuming a consensus on what counts as contract law,43 reform in isolation is also likely to prove unsatisfactory. There are troublesome boundaries with other legal categories.44 A restatement would be difficult to produce.45 Radical reform will be that much harder. None of the existing models are really suitable templates.46 There is no Australian equivalent of the American Law Institute.47 The various attempts to codify European contract law by utilising academic experts have produced some elegant proposals, but the work has been painfully slow.48 The pool of suitably qualified academic experts within Australia is naturally much shallower.49 The lesson from Europe, where those involved used the opportunity and Legal Perspectives (Groningen, Europa Law, 2005); S Vogenauer and S Weatherill, ‘The European Community’s Competence to Pursue the Harmonisation of Contract Law—an Empirical Contribution to the Debate’ in S Vogenauer and S Weatherill (eds), The Harmonisation of European Contract Law (Oxford, Hart Publishing, 2006) ch 7. 39 In the Civilian manner, an agreement based on offer and acceptance demonstrates an intention to contract. Consideration is not required: Y Bu, Chinese Civil Law (Oxford, CH Beck, 2013) ch 5; N Kornet, ‘Contracting in China: Comparative Observations on Freedom of Contract, Contract Formation, Battle of Forms and Standard Form Contracts’ (2010) 14 Electronic Journal of Comparative Law 1, 13–20. 40 J Morgan, Contract Law Minimalism (Cambridge, Cambridge University Press, 2013) 184–89. 41 The recent Oxford Civil Justice Survey suggests that England, Switzerland, Germany and the United States were the most popular jurisdictional choices for cross-border transactions: http://denning.law.ox.ac.uk/iecl/pdfs/ Oxford%20Civil%20Justice%20Survey%20-%20Summary%20of%20Results,%20Final.pdf. 42 For an account of these from historical parallels, see W Swain, ‘Codification of Contract Law: Some Lessons from History’ (2012) 31 University of Queensland Law Journal 39. 43 M Ellinghaus, ‘An Australian Contract Law?’ (1989) 2 Journal of Contract Law 13; J Gava, ‘An Australian Contract Law—a Reply’ (1998) 12 Journal of Contract Law 242. 44 For a study addressing these issues in a European context see C von Bar and U Drobnig, The Interaction of Contract Law and Tort and Property Law in Europe (Munich, Sellier, 2004). 45 I am grateful to Professor Burrows, who made the point that a restatement of contract law would be achievable. His own work, with others, on producing restatements shows that this is the case. There is an added difficulty in Australia, however, in that there are differences between the various states and territories. Since this chapter was written, the contract restatement has been published: A Burrows, A Restatement of the English Law of Contract (Oxford, Oxford University Press, 2016). 46 Tettenborn (n 24) 23, 291–92. 47 For an account of the American process, see E Farnsworth, ‘Ingredients in the Redaction of The Restatement (Second) of Contracts’ (1981) 81 Columbia Law Review 1. More non-lawyers are consulted than in the past in recent American Law Institute Restatements: see M Traynor, ‘The First Restatements and the Vision of the American Law Institute Then and Now’ (2007) 32 Southern Illinois University Law Journal 145, 168–69. The Australian Academy of Law contains some genuinely distinguished scholars with international profiles as its Fellows, but it is hardly an equivalent body. 48 O Lando, ‘Has PECL Been a Success or a Failure?’ (2009) 17 European Review of Private Law 367. 49 When the paper on which this chapter is based was delivered in Australia, a few members of the audience took offence at this remark. I am most certainly not suggesting that there are no good and capable lawyers in Australia (or indeed in Queensland). Rather I am suggesting that, when set against the whole of Europe or America, the numbers capable of carrying out the task are inevitably very much smaller.

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to pursue social aims,50 is that the process is not politically neutral.51 The Australian Law Reform Commission,52 as currently constituted and funded, would find it difficult to take on a project of this scale. The danger would be that an unsatisfactory code, whoever had drafted it, would cause as many problems as it solved.53 In the end, the hurdles in the way of a contract code are likely to be too high even before any constitutional barriers are considered.54 There are emotional as well as practical reasons for reaching this conclusion. A code would require an enormous cultural shift before a legal profession brought up in the common law tradition would embrace it. It is sometimes easy for academic writers, used to being deferred to by their students in some of their more idiosyncratic ideas, to fail to appreciate the strength of the conservative instinct, which permeates the history of legal development.55 This is not to say that incremental common law development cannot also bring about quite radical change. In the likely absence of a law code, the courts will have to shoulder the burden.

II. Contract Doctrine: ‘Fair Go’ or ‘Far to Go’? For those who would like to see Australian contract law move further away from its English roots and, in the process, further embrace notions of fairness, there are already grounds for optimism. In Aiton Australia Pty Ltd v Transfield Pty Ltd, Einstein J observed that, ‘Fair dealing is a major (if not openly articulated) organising idea in Australian law.’56 It is reflected in a number of different aspects of the existing law. In developing the unconscionable dealing doctrine, Australian judges have shown themselves happy to draw on equitable principles in a way that no modern English judge, with the possible exception of Lord Denning, has had the nerve to do.57 Some recent members of the High Court have seen themselves as the true heirs of Lord Mansfield.58 For a typical English judge, the process smacks far too much of ‘palm tree justice’ or ‘discretionary remedialism’.59 These criticisms ought not 50

M Hesselink, ‘The Politics of a European Civil Code’ (2004) 10 European Law Journal 675. The attempt to promote ‘social justice’ is a good example: Study Group on Social Justice in European Private Law, ‘Social Justice in European Contract Law: A Manifesto’ (2004) 10 European Law Journal 653; H Collins, The European Civil Code The Way Forward (Cambridge, Cambridge University Press, 2008). 52 P Handford, ‘The Changing Face of Law Reform’ (1999) 73 Australian Law Journal 503, 507–10. 53 The New Zealand experience should be a warning rather than a blueprint: R Bigwood, ‘The Partial Codification of Contract Law: Lessons from New Zealand’ in Keyes and Wilson (eds) (n 25) ch 8. 54 There are no obvious provisions which might apply to contract law generally under the Constitution of the Commonwealth of Australia. I am grateful to Professors Aroney, Orr, and Ratnapala for discussion on this point. It would therefore need the cooperation of the states and territories. Oddly, very little has been said on this issue. It is mentioned in the Australian Academy of Law submission, (n 20) above. 55 The best account of the phenomena is S Milsom, The Natural History of the Common Law (New York, Columbia University Press, 2003). 56 Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236, 257 (NSWSC). 57 There are good historical reasons for the caution: W Swain, ‘Reshaping Contractual Unfairness in Eighteenth and Nineteenth Century England’ (2014) 35 Journal of Legal History 131–49. 58 This is particularly evident in the way that the High Court of Australia has shown itself to be anxious to resile from the idea of unjust enrichment: W Swain, ‘Unjust Enrichment and the Role of Legal History in England and Australia’ (2013) 36 University of New South Wales Law Journal 1030. 59 P Birks, ‘Three Kinds of Objection to Discretionary Remedialism’ (2000) 29 University of Western Australia Law Review 1; D Jensen, ‘The Rights and Wrongs of Discretionary Remedialism’ (2003) Singapore Journal of Legal Studies 178. 51

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to be e xaggerated. The point is neatly illustrated by the unconscionable dealing doctrine. Discretion isn’t entirely unstructured and devoid of principle.60 There is still, however, no getting away from the fact that a degree of unpredictability still exists. This became evident once the courts went beyond the core situations of disability.61 Emotional dependency has proved particularly problematic.62 It is difficult to conclude that either Louth v Diprose63 or Bridgewater v Leahey64 produced sensible outcomes. Recent signs are that this particular doctrine may have reached its high water mark.65 Yet the way that the doctrine is structured around the concepts of ‘special disadvantage’ and ‘unfair or unconscientious advantagetaking’,66 means that the door remains firmly open for a more activist High Court Bench at some future date. Ten years ago, it was said that Australian contract law was in a ‘state of utter confusion’ so far as good faith was concerned.67 More recently, one English judge has argued that in Australia a contractual duty of good faith is ‘well established although the limits and precise juridical basis of the doctrine remain unsettled’.68 Academic, as well as judicial opinion, is split.69 In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd70 a majority of the New South Wales Court of Appeal accepted that an agreement to negotiate in good faith was enforceable, but declined to find such a contract on the facts.71 Kirby P, who gave the leading judgment of the majority, recognised that it would also be difficult to find a breach in practice, because such contracts will necessarily contemplate that negotiations might come to nothing.72 After a period of resistance,73 agreements to negotiate in good faith have begun to be enforced.74 Dispute resolution clauses containing an express requirement of good faith are treated as valid.75 60

These were set out in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 (HCA). As set out in Blomley v Ryan (1956) 99 CLR 362, 405 (HCA). 62 A Finley, ‘Can We See the Chancellor’s Footprint?: Bridgewater v Leahy’ (1999) 14 Journal of Contract Law 265; C Rickett, ‘Bridgewater v Leahy—A Bridge Too Far?’ (2012) 31 University of Queensland Law Journal 233. 63 Louth v Diprose (1992) 175 CLR 621 (HCA). 64 Bridgewater v Leahey (1998) 194 CLR 457 (HCA). 65 Kakavas v Crown Melbourne Ltd [2013] HCA 25. The decision is discussed by R Bigwood, ‘Kakavas v Crown Melbourne Ltd Still Curbing Unconscionability: Kakavas in the High Court of Australia’ (2013) 37 Melbourne University Law Review 463; W Swain ‘The Unconscionable Dealing Doctrine: in Retreat?’ (2014) 31 Journal of Contract Law 255. 66 Amadio (n 60) 462 (Mason J); 474 (Deane J). 67 J Carter and E Peden, ‘Good Faith in Australian Contract Law’ (2003) 19 Journal of Contract Law 155. 68 Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 [127] (QB). Australian judges have said the same thing, for example United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618, 635 (NSWSC). 69 For an overview of academic opinion, see H Munro, ‘The Good Faith Controversy in Australian Commercial Law: a Survey of the Spectrum of Academic Legal Opinion’ (2009) 28 University of Queensland Law Journal 167. 70 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 (NSWCA). 71 ibid 26–27 (Kirby P), Waddell A-JA agreed. Hadley JA who dissented, described such an agreement at 42 as ‘illusory’. 72 ibid 27. 73 It was noted in obiter in several authorities that a narrow approach accorded with Walford v Miles [1992] 2 AC 128 (HL): see Australia Media Holdings Pty Ltd v Telstra (1998) 43 NSWLR 104, 128 (NSWCA); Healey v Commonwealth Bank of Australia [1998] NSWCA 103. 74 Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. 75 United Group Rail Services Ltd v Rail Corporation New South Wales (n 68), cf the more restricted view of Giles J in Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709, 716 (NSWSC). For a discussion of recent authority, see J O’Connor, ‘The Enforceability of Agreements to Negotiate in Good Faith’ (2010) 29 University of Tasmania Law Review 177. 61

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Express provisions requiring good faith in performance have also been enforced on a number of occasions.76 Although a duty to cooperate has long been recognised,77 the implication of a duty of good faith is more controversial.78 There is strong support in some quarters. It has been said that good faith is a ‘legal incident’ of every franchise agreement,79 and even every commercial contract in New South Wales.80 Other statements are hardly less radical.81 At the same time, it has also been argued that the courts should be ‘slow to intrude into the commercial dealings of parties who are quite able to look after their own interests… especially where the parties are all wealthy, experienced, commercial entities, able to attend to their own interests.’82 The High Court in Royal Botanic Gardens and Domain Trust v South Sydney City Council83 declined an opportunity to discuss the role of good faith generally, or to rule on the precise grounds for implying a term of good faith. Kirby J did at least signal that he was not convinced by the merits of implying a term of good faith. He observed that to imply a term of good faith conflicted with ‘fundamental notions of caveat emptor that are inherent … in common law conceptions of economic freedom’.84 Consistency surrounding the process of implication is lacking.85 There are also differences between states.86 Twenty years ago, it was forecast that, ‘It is likely that ultimately Australian courts will embrace the American and Civil law concept of the obligation that each contracting party should show good faith in the performance of contractual obligations.’87 We may now be getting closer to that point. When faced with this issue, it seems more likely than not that the High Court will accept a general principle of good faith—even an implied one. Broad notions of fairness seem likely to continue to be attractive to Australian judges. Even in England, where the judiciary are traditionally hostile to the notion of good faith, there are some signs of a thaw.88 A general doctrine of contractual good faith is well established in 76 Optus Networks Pty Ltd v Telstra Corp Ltd [2001] FCA 1798 (FCA); Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; Macquarie (n 74). 77 Mackay v Dick (1881) 6 App Cas 251 (HL). 78 Butt v M’Donald (1876) 7 QLJ 68, 70–71 (QSC); Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607 (HCA). 79 Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310 [120] (VSC); Bamco Villa Pty Ltd v Montedeen Pty Ltd [2001] VSC 192 [162] (VSC). 80 Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 [62] (NSWSC); Hunter Business Finance Pty Ltd v Australian Commercial & Equipment Finance Pty Ltd [2003] NSWSC 122 [71] (NSWSC). 81 Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 263–68 (Priestley JA) (NSWCA); Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151, 192–93 (Finn J) (ACTDR). 82 GSA Group Pty Ltd v Siebe PLC (1993) 30 NSWLR 573, 579 (NSWSC). For a similar note of caution see: Androvitsaneas v Members First Broker Network [2013] VSCA 212 [108] (VCA). 83 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 (HCA). 84 ibid 75. 85 E Peden, Good Faith in the Performance of Contracts (Sydney, LexisNexis, 2003) 6.10–6.12; M Gordon, ‘Discreet Digression: The Recent Evolution of the Implied Duty of Good Faith’ (2007) 19 Bond Law Review 26. 86 The courts in Victoria have approached the issue as one of implication of fact, whereas the courts in New South Wales have tended to favour implying a term in law. For a discussion, see the Hon M Warren, ‘Good faith: where are we at?’ (2010) 34 Melbourne University Law Review 344, 348. 87 GSA Group (n 82) 580. 88 Yam Seng (n 68). In fact it has been said that the concept of good faith is not ‘wholly unfamiliar’ to English lawyers. See Director General Office of Fair Trading v First National Bank [2002] 1 AC 481, 494 (Lord Bingham) (HL). The presence of good faith in other doctrines is sometimes used as an argument against a general principle of good faith: M Bridge, ‘Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?’ (1984) 9 Canadian Journal of Business Law 385.

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Europe89 and the United States.90 Canada now appears to be going in the same direction.91 New Zealand remains more equivocal.92 There are still Kirby J’s objections to overcome,93 alongside the broader point that a general doctrine of good faith is not soundly grounded in precedent. Yet at the same time, in the second decade of the twenty-first century, the time may have come to build a more diverse model of contractual relationships, and good faith has a role to play in that process.94 If good faith is not to be implied into every contract, then the first issue to resolve is when the duty will be implied. Ascertaining what amounts to good faith will also be difficult. It may comprise a bundle of different notions,95 or even be impossible to define.96 One solution, first advocated by Robert S Summers, is to accept that good faith has no ‘general meaning of its own’ but can be determined by reference to what it is not, namely conduct amounting to bad faith.97 There is support for this idea in the courts.98 Others argue that good faith has a core meaning.99 A more positive approach may prove attractive, because it allows judges more freedom to shape the direction of the doctrine, and yet a version of good faith which is equated with ‘community values’ looks too close to public policy to be adopted. Whatever the meaning, there is a risk of inconsistent application. This is all too evident when the courts have tried to distinguish between economic duress and acceptable commercial pressure.100 But whichever approach is used, there are other reasons to doubt that a doctrine of good faith will have the impact its supporters hope for and its critics fear. It may be difficult to argue that the duty to act in good faith has been breached. The doctrine does not, after all, require one contracting party to subordinate their interests to the other.101 There is no reason why such a duty cannot be excluded either,102 perhaps provided

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For example, in the French Code Civil Art 1134. Restatement (Second) of Contract (1981) §205. 91 Bhasin v Hrynew [2014] 3 SCR 495 (SCC). For comment, see J McCamus, ‘The New General “Principle”’ of Good Faith Performance and the New “Rule” of Honesty in Performance in Canadian Contract Law’ (2015) 32 Journal of Contract Law 103. 92 In New Zealand, Thomas J has advocated a general doctrine of good faith: Livingstone v Roskilly [1992] 3 NZLR 230, 237 (NZHC); Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506, 511–17 (NZCA); J Burrows, J Finn, S Todd, Law of Contract in New Zealand (Wellington, LexisNexis, 2012) 215–17; D McLauchlan, ‘The Agreement to Negotiate in Good Faith: A Non-Justiciable Contract?’ (2005) 11 New Zealand Business Law Quarterly 454. 93 A similar point was made by Lord Ackner in Walford v Miles [1992] 2 AC 128, 138 (HL). 94 For an argument along these lines see: D Campbell, ‘Good Faith and the Ubiquity of the Relational Contract’ (2014) 77 MLR 475. This idea has not yet caught on in England. I am grateful to Professor Campbell for his advice on this issue. 95 Macquarie (n 74). 96 The Hon Mr Justice Steyn, ‘The Role of Good Faith and Fair Dealing in Contract Law: A Hair-Shirt Philosophy?’ (1991) 6 Denning Law Journal 131, 140. 97 R Summers, ‘Good faith in General Contract Law and the Sales Provision of the Uniform Commercial Code’ (1968) 54 Virginia Law Review 195, 196. 98 Renard (n 81) 266–67; Burger King v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558, 566 (NSWCA); Overlook (n 80) [68]–[71]. 99 J Stapleton, ‘Good Faith in Private Law’ (1999) 52 Current Legal Problems 136; JF Keir Pty Ltd v Priority Management Systems Pty Ltd (Administrators Appointed) [2007] NSWSC 789 [27] (Rein AJ) (NSWSC); Automasters Australia Pty Ltd v Bruness Pty Ltd (n 76) [351]. 100 For a summary, see M Chen-Wishart, Contract Law, 4th edn (Oxford, Oxford University Press, 2012) 318–19. 101 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. 102 Contrast the difference in emphasis between, J Carter, Contract Law, 6th edn (Sydney, Lexis Nexis, 2013) [2.20]; N Seddon, R Bigwood, M Ellinghaus, Cheshire & Fifoot Law of Contract, 10th edn (Sydney, Lexis Nexis, 2012) [10.49]. 90

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that the exclusion does not sanction dishonesty.103 Good faith is just one of the situations in which the future direction of Australian contract law looks likely to diverge from its English heritage. The relationship between Australian and English law remains a slightly uneasy one, and it is likely to remain so for the foreseeable future.

III. Digging Around the Taproot of the Common Law Tree In his comparison with English contract law, Sir Anthony Mason noted that: The general principles of English contract law are set in the large commercial cases decided by the House of Lords. Whether these general principles are entirely suited to Australian contract law which, as we are not an international commercial or maritime centre, is much more consumer orientated, is open to question. No doubt this difference explains why we have been more inclined to grant equitable relief in contract.104

Between 1904 and 1986, 68 per cent of cases in the High Court of Australia involved the sale of land.105 During the same period, in the House of Lords, land sales made up a mere 1.5 per cent of cases. Most decisions concerned commercial contract disputes over insurance, shipping, contracts of carriage, or the sale of goods.106 These differences aside, it can still be said that Australian contract law has ‘a second-hand quality’.107 At the same time, the historical differences should not be underestimated. Sometimes this is quite hard to define, but it goes to the spirit of Australian contract law. From the time of the early colony, the law of contract was forced to adapt to local conditions. The earliest judges in the Court of Civil Jurisdiction were not lawyers. Blackstone’s Commentaries were all that they had for guidance.108 Although perfectly recognisable to an English lawyer of the time, colonial contract law had a more informal flavour, which was partly a product of summary procedure, and which had parallels in the English Court of Requests.109 Even when the legal system had become increasingly legalistic following the Third Charter of Justice,110 major differences remained. Prominent amongst these was

103 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 209 (FCA) where Finn J said that whilst an implied duty of good faith could be excluded by an express or inconsistent provision, he thought that it was ‘difficult to envisage an express provision authorising dishonesty’; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 [194] (Giles JA). 104 Sir A Mason, ‘Future Directions in Australian Law’ (1987) 13 Monash University Law Review 149, 153. 105 M Ellinghaus, ‘Towards an Australian Contract Law’ in M Ellinghaus, A Bradbrook and A Duggan, The Emergence of Australian Law (Sydney, Butterworths, 1989) 44, 53. 106 ibid. 107 ibid 49. 108 W Prest, ‘Antipodean Blackstone: The Commentaries Down Under’ (2003) 6 Flinders Journal of Law Reform 151, 154–55. 109 For a flavour of early Australian contract law, see B Kercher, Debt Seduction and Other Disasters (Sydney, The Federation Press, 1996). 110 Hon Justice Else-Mitchell and J Bennett, ‘The Charter of Justice of New South Wales—Its Significance in 1974’ (1974) 48 Australian Law Journal 262.

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the failure of New South Wales to adopt the Judicature Acts system until 1972.111 This has allowed equitable doctrine more room to breathe than in England.112 Forty years on, the legacy of the delay is still being felt, not just in New South Wales, but within the High Court of Australia itself.113 The English common law of contract still remains something of a taproot for Australian lawyers. Short of a radical codification, it will be extremely difficult to dig up. In the unlikely event that a contract code is enacted, it is still hard to believe that judges will start afresh. Important elements of New Zealand contract law are codified, and yet the statutes are informed by the common law, both in drafting and in application.114 Some Australian statutes are modelled on English equivalents.115 Others are quite different. The Trade Practices Act 1974 and successor legislation is without English parallel. Statute is likely to be one vehicle for separation. But statute can also influence the way that judges approach the common law. An Australian judge used to dealing with the broad concepts under statute may be less inclined to use caution when applying the common law. As a result, a particular mindset takes hold. It is not all that difficult to predict that the bonds between the non-statutory law of contract, and English law, may also weaken. It is much more difficult to predict what precise form this process will take. Formalistic legal reasoning was a prominent feature of contract cases in Australia for a very long time. It was a characteristic of the judgments of Sir Owen Dixon, arguably Australia’s finest High Court judge.116 Although the law of contract—littered as it is with exceptions, inconsistencies, and conflicting authority—is too messy to be entirely formalistic, a formalistic mind at least recognises that certainty is important, especially for commercial parties.117 In recent times, the idea that contract law should aim to be more contextual than formalistic, has gained some traction.118 Looking to the future, there are features of Australian law which may even make such an approach more, rather than less, likely. Deane J explained that the unconscionable dealing doctrine was designed to prevent people ‘from being victimized by other people’.119 An idea like this is, by its nature, contextual. The difficulty is in determining the content of that contextual inquiry, in the absence of a properly 111 For a history, see J Heydon, M Leeming, P Turner, Meagher, Gummow and Lehane’s, Equity Doctrines and Remedies, 5th edn (Sydney, LexisNexis, 2015) 12–23. 112 P Finn, ‘Common Law Divergences’ (2013) 37 Melbourne University Law Review 509, 516. 113 Individual judges have had an important influence in this regard: K Mason, Lawyers Then and Now (Sydney, The Federation Press, 2013) 174–82. 114 For example, the Contractual Remedies Act 1979, on which see F Dawson and D McLauchlan, The Contractual Remedies Act 1979 (Auckland, Sweet & Maxwell, 1981). 115 The statutory provision on frustrated contracts in Victoria for example is based on the Law Reform (Frustrated Contracts) Act 1943. The current legislation is contained in the Australian Consumer and Fair Trading Act 2012 (Vic) Pt 3.2. Other states, such as Queensland, have no legislation, or the legislation that there is takes a different form to that in New South Wales. 116 J Gava, ‘Sir Owen Dixon, Strict Legalism and McRae v Commonwealth Disposals Commission’ (2009) 9 Oxford University Commonwealth Law Journal 141; J Gava, ‘Another Study in Judging: Sir Owen Dixon and Yerkey v Jones’ (2010) 26 Journal of Contract Law 248; J Gava, ‘Dixonian Strict Legalism, Wilson v Darling Harbour Stevedoring and Contracting in the Real World’ (2010) 30 OJLS 519; J Gava, ‘When Dixon Nodded: Further Studies of Sir Owen Dixon’s Contracts Jurisprudence’ (2011) 33 Sydney Law Review 157. 117 Though this is not and actually never has been an absolute value: Bunge SA v Nidera [2015] UKSC 43 [23] (Lord Sumption). 118 C Mitchell, Contract Law and Contract Practice (Oxford, Hart Publishing, 2013) ch 4. 119 Commonwealth v Verwayen (1990) 170 CLR 394, 440 (HCA).

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worked out normative underpinning of the doctrine itself.120 Good faith is likely to present the same sort of challenge for those who favour a formalistic approach, and those who advocate a contextual one.121 The contextual approach brings some significant practical problems.122 Superior court judges may be more willing to engage in a wider dialogue than in times past,123 but this becomes more difficult once they step outside legal or government circles. At the very least, there must be a risk of judicial assertions which may not be accurate. For example, the claim by the High Court in Kakavas that if the appellant were to succeed, then casinos would close their doors to high rollers, even assuming it is relevant, is difficult to test.124 It may even be counterintuitive. Paradoxically, contextualism may sometimes run up against context. Commercial parties especially, contract, litigate, and generally arrange their behaviours, on the basis of the law as they understand it.125 Although it may be possible to make provision for uncertainty,126 it may be also be difficult to plan properly,127 even when the plan involves not resorting to the law of contract.128 This danger only recedes if context is given some content. A sophisticated contextual analysis in the relational theory of contract, with its normative structure, has obvious academic appeal.129 Whilst context has always played some role in contract law,130 doctrinal shifts and greater complexity of contractual relations may make context more significant. But rather than allowing judges to perceive contractual relations in a new light, in the sense recognisable by relational theorists, it is much more likely that the context of the contractual relationship will at best provide a gloss on formalism. In a legal system where contract law is not so dominated by large commercial contracts as it is in England, Australia is likely to prove a more fertile soil. The changes chronicled thus far are real enough, but they should not be overstated either.

120 For a sophisticated attempt to provide that structure, see R Bigwood, Exploitative Contracts (Oxford, Oxford University Press, 2003). 121 For recognition of this fact, albeit in New Zealand, see Thomas J in Bobux Marketing Ltd v Raynor Marketing Ltd (n 92). 122 For criticisms of contextualism, see J Gava and J Greene, ‘Do We Need a Hybrid Law of Contract? Why Hugh Collins is Wrong and Why it Matters’ (2004) 63 CLJ 605; J Gava, ‘How Should Judges Decide Commercial Contract Cases?’ (2013) 30 Journal of Contract Law 133. For a counter-argument by a leading judge, which at the same time recognises some of the difficulties, see: J Heydon, ‘How the Courts Develop Commercial Law by Looking Outside the Trial Record into the External World’ (2012) Lloyd’s Maritime and Commercial Law Quarterly 30. 123 These themes are explored in A Paterson, Final Judgment. The Last Law Lords and the Supreme Court (Oxford, Hart Publishing, 2013). 124 Kakavas (n 65). Transfield Shipping Inc v Mercator Shipping Inc [2009] 1 AC 61 (HL) is another good recent example. See E Peel, ‘Remoteness Re-visited’ (2009) 125 LQR 6, 11. 125 Contract law is after largely a series of default rules, all of which apply where the parties have made no contrary provision. It can be argued that default rules should also reflect what most parties intend: R Barnett, ‘The Sound of Silence: Default Rules and Contractual Consent’ (1992) 78 Virginia Law Review 821, 875–85. Contextual unpredictability makes this all but impossible. 126 I Macneil, ‘Uncertainty in Commercial Law’ (2009) 13 Edinburgh Law Review 68, 75. 127 I Macneil, ‘A Primer of Contract Planning’ (1974–1975) 48 Southern California Law Review 627. 128 D Campbell, ‘What Do We Mean by a Non-use of Contract?’ in J Braucher, J Kidwell and W Whitford (eds), Revisiting the Contracts Scholarship of Stewart Macaulay (Oxford, Hart Publishing, 2013) ch 5. 129 I Macneil, ‘Values in Contract: Internal and External’ (1983) 78 Northwestern University Law Review 340. 130 W Swain, ‘Lawyers, Merchants and the Law of Contract in the Long Eighteenth Century’ in D Ibbetson and M Dyson (eds), Law and Legal Process (Cambridge, Cambridge University Press, 2013) 186–216.

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IV. Contract Law: Old Wine in Old Bottles? Views differ on the extent to which Australians still suffer from ‘cultural cringe’.131 If such an attitude exists in contract law, it is diminishing. The past 30 years have seen the emergence of a home-grown Australian contract literature. Contract Law in Australia, the pioneering textbook by KE Lindgren, JW Carter, and DJ Harland, appeared as long ago as 1986.132 The current Australian edition of Cheshire and Fifoot is quite different from its English equivalent.133 But the older attitude is still not entirely extinct. Tellingly, the latest Australian contract textbook is a version of a longstanding English work.134 A thread, albeit in places a frayed one, links modern Australian contract law to a past stretching back to the nineteenth century and beyond. Since the so-called classical model of contract was at its most dominant, the law has changed a great deal.135 And yet, in some ways the classical model of contract has proved to be extremely durable. Not least of these aspects of durability is the way in which contract law continues to be perceived as a single body of coherent doctrine. This is an aspect of the formalistic type of reasoning which has dominated the area, but is also reflected in the way in which the subject is written about and taught in universities. In the first edition of Sir William Anson’s Principles of the English Law of Contract,136 published in 1879, after an introductory chapter, the author proceeded to consider offer and acceptance, formalities, consideration, capacity, mistake, misrepresentation, fraud, duress, undue influence, illegality, privity, interpretation, discharge by agreement, performance, breach, remedies for breach, frustration and operation of law, and finally, agency. Once statute is removed from the equation, this is little different to the typical modern contract textbook, except that agency is likely to be covered in rather less detail,137 with contract remedies meriting a rather longer treatment these days. This structure closely mirrors the leading Australian textbook. This remarkable situation is also reflected in the way that the law of contract is taught in universities. The last hundred years has seen, in no particular order, a proliferation of statutes, the rise of the consumer rights movement, public sector contracting, the development of modern employment law, the creation of a welfare state, modern company and insolvency law, the creation of a global market, and, in Europe, the rise of the EU. Despite these developments, large parts of the contract syllabus remain unaltered from a time when

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L Hume, Another Look at the Cultural Cringe (Sydney, Centre for Independent Studies, 1993). (Sydney, Butterworths, 1986). 133 Seddon et al (n 102). 134 E McKendrick, Q Liu, Contract Law: Australian Edition (London, Palgrave, 2015). 135 Some of the central tenets of classical contract law, such as the suggestion that there was ever total freedom of contract, even in the nineteenth century, can be exaggerated. Some contracts such as those involving p awnbroking were regulated even then: W Swain and K Fairweather, ‘The Legal Regulation of Pawnbroking in England’, in J Devenney and M Kenny (eds), Consumer Credit, Debt and Investment in Europe (Cambridge University Press, Cambridge, 2012) 142–59. 136 (Oxford, Clarendon Press, 1879). 137 Albeit not in the modern edition of Anson, which does cover agency in some detail. The most notable exception is H Collins, The Law of Contract, 4th edn (London, Butterworths, 2003). 132

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Queen Victoria was on the throne. The felony is compounded by the fact that it was only after the Second World War that, in some people’s minds, law was even seen as a proper subject for a degree.138 In the face of diverse theories such as Legal Realism, Law and Economics, Relational Theory, Critical Legal Studies, Feminism, and the Death of Contract School, the Classical law of contract has clung on. The unease this generates is not just a matter of high theory. Australian law students are required to study a range of compulsory courses in order to be admitted into practice (the so called Priestly 11). Contract law is one of these subjects. The content of that course is further mandated as including: formation, including capacity, formalities, privity and consideration, content and construction of contract, vitiating factors, discharge, remedies, assignment, or in the alternative: Topics of such breadth and depth as to satisfy the following guidelines. Some variation may be expected in the breadth and detail of the topics. In general, however, knowledge of the formal requirements for concluding contracts, capacity, the content and interpretation of contracts, their performance and discharge, available remedies, together with an understanding of the broad theoretical basis of contract would be expected.

Whilst there is considerable overlap between the two versions, it is not too fanciful to detect a difference in emphasis. The second list is closer to the concerns of modern legal practice. There may be some merit in this. But at the same time, there is a tension in law schools between those who want the subject to be a properly scholarly discipline, worthy of the name, and those who see it as a passport to legal practice. All too often, the result is unsatisfactory on both levels. There is nothing novel in the observation that many of the contract cases used in teaching do not reflect the reality of contract law in practice.139 Even the most dim-witted student can recall the case of Carlill v Carbolic Smoke Ball Co,140 in large part perhaps, for the very reason that the facts have such an aura of unreality about them. The contract syllabus has been criticised for decades.141 There are real incentives against challenging the status quo. Contract law is often taught early in a degree. It is seen as a good introduction to legal reasoning.142 The typical modern law student finds complexity frightening. They are much more comfortable with bite-sized chunks, PowerPoints, and a lecturer who teaches to the test. The best that can be hoped for is that most students will read a casebook or the course materials. Most students will not read authorities in full. It is a fatal error to be accused of expecting too much. Only the capable and bloody-minded, who neither seek nor require promotion, will teach differently. This would not matter very much in an Arts degree. In law it matters a very great deal. The number of law students has grown by 32 per cent in the last 10 years.143 This is good for universities. The cost of running law 138 Brian Simpson describes the Oxford Law Faculty of the 1950s as a ‘dumping ground’ for those without the ability to cope with Greats or History: AW Brian Simpson, Reflections on the Concept of Law (Oxford, Oxford University Press, 2011) 65–67. 139 K Llewellyn, ‘Our Case Law of Contract: Offer and Acceptance II’ (1938–39) 48 Yale Law Journal 779, 785. 140 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA). 141 R Lewis, ‘Criticisms of the Traditional Contract Course’ (1982) 16 Law Teacher 111. 142 At the Group of Eight Law Schools in Australia, excluding JD programmes, contract law is taught in the first years at ANU, Adelaide (for a single rather than a combined law degree), and in the second year at the University of Queensland, University of Sydney, Monash, and in year three at UNSW. 143 M Adams, ‘Developments in Australian curriculum and teaching across various law degrees’ (2014), www.cald.asn.au/assets/lists/External%20Engagement/Adams,%20Michael.%20Paper%20presented%20at%20 the%20Sino-Aust%20Law%20Deans%20Meeting%2028–29%20Sept%202014.pdf.

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degrees is relatively small. No expensive equipment is needed. It has to be rather more doubtful whether more than a tiny fraction of the more than 36,000 students enrolled in law degrees, have the aptitude and intelligence to think critically about the law of contract in any meaningful sense. Because of the quantity of research required by the demands of various research exercises and for internal university promotions panels, the quality inevitably suffers. Some of this writing is about the law of contract. It is difficult not to feel pessimistic.144 It seems unlikely that Australian law schools will be a catalyst for change.145 Most of the significant body of recent contract scholarship is produced in the United States. But does any of this work have much influence on judges anyway? Some scepticism may be called for.146 The relationship between judges and jurists has always been slightly uneasy.147 As one academically inclined judge has observed, ‘Judges are not law professors.’148 Even if they wanted to, academics would not be able to drive change in a significant way on a consistent basis. Meanwhile in England, any natural conservatism has been undermined by European initiatives, which have come into the law.149 Aside from the growing importance of international contracting, any innovations in Australia are likely to be home-grown in origin. The direction of contract law in the next 25 years will in part depend on the makeup of the Bench, particularly the High Court Bench. The idea that an individual or group of judges might influence the direction of the law cannot quite be dismissed as ‘pathetically quaint’.150 It is a factor that has always been with us. Innovators tend to be remembered more than conservatives. But the latter group is at least as important, and perhaps more so. The prejudices of individual judges are not the only element of chance. Australian contract law has suffered from the relative absence of High Court decisions on the subject in recent times. Even when the opportunity has presented itself, the High Court has, on occasion, perhaps been too disinclined to give something like a definitive answer.151 The standard of reasoning in some of the decisions of the state courts could sometimes be better.152 But it would be churlish to end on a sour note. There is a clear interest in reforming the

144 For a rare, and brave, attempt to confront some of these issues, see J Gava, ‘Law Reviews: Good for Judges, Bad for Law Schools?’ (2002) 26 Melbourne University Law Review 560. I can only plead mea culpa in this regard. 145 This is not just an issue of competence but also one of mind-set and inclination: S Bartie, ‘The Lingering Core of Legal Scholarship’ (2010) 30 Legal Studies 345. 146 H Edwards, ‘The Growing Disjunction Between Legal Education and the Legal Profession’ (1992) 91 Michigan Law Review 34. For more positive views see, M Kirby, ‘Welcome to Law Reviews’ (2002) 26 Melbourne University Law Review 1; Lord Rodger, ‘Judges and Academics in the United Kingdom’ (2010) 29 University of Queensland Law Journal 29. 147 N Duxbury, Jurists and Judges (Oxford, Hart Publishing, 2001). 148 R Posner, How Judges Think (Cambridge MA, Harvard University Press, 2008) in a chapter of that title. 149 Which is not to say that English law has not always borrowed Civilian ideas to some extent: D Ibbetson, Common Law and Ius Commune (London, Selden Society, 2001). Academic writers are of course involved in some of these projects, but the influence is indirect. 150 D Campbell, ‘The Undeath of Contract: A Study in the Degeneration of a Research Programme’ (1992) 22 Hong Kong Law Journal 20, 26. 151 Royal Botanic Gardens (n 83) is a particularly glaring example. 152 This seems to be something of a taboo subject amongst the profession in Australia. This is not to say that there are no thoughtful judgments in the state courts. On occasion they may even surpass the High Court in analysis on a particular issue. A good recent example from Queensland is the judgment of Jackson J in Jamieson & Ors v Westpac [2014] QSC 32.

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law of contract in Australia in some circles.153 The chances are that major reform will not occur in a planned way, or even necessarily be deliberate. It is difficult to predict the future beyond broad trends. As Milsom reminds us, ‘fundamental change [in law] happens slowly and by stages so small that nobody at the time could see them as in any way important, let alone as steps toward an unimaginable future’.154

153 J Edelman, J Goudkamp, and S Degeling, ‘Contemporary Problems in the Law of Contract’ (2015) 40 Australian Bar Review 174. 154 Milsom (n 55) 75.

Part II

Legislation, Codification and the Role of the Common Law

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6 Codification of Private Law: Scots Law at the Crossroads of Common and Civil law MARTIN A HOGG

I. Introduction Scotland is often described as a ‘mixed’ legal system,1 in which the two most influential mixes have been the Civil law tradition,2 mediated through both Roman law and the later ius commune, and the Common law tradition, absorbed through application of English case law and through legislative development mirroring (or coupled with) English statutory reform.3 The result has not been a legal system of hybrid rules, half Civilian and half Common law in nature, but rather one where some parts of the law are more Civilian in character (property law, for instance), some more Common law (parts of commercial and securities law, for instance), and some a collection of rules deriving from both the Civil and Common law (contract, delict, and trust being examples). Scots law has a marked fondness for taxonomy and abstract principles, but has also embraced the Common law’s doctrine of judicial precedent, so that development of the common law by the courts takes place within a context of principles which do not derive solely from prior judgments. The nature of the Scottish mixed legal system, and the attractions which both the Common and Civil law offer, place Scotland at a crossroads so far as the issue of codification of the law is concerned. To codify or not to codify? That is the (present) question.

1 The concept of mixed legal systems is discussed in K Reid, ‘The Idea of Mixed Legal Systems’ (2003) 78 Tulane Law Review 5. 2 In this chapter, ‘Civil’ and ‘Common’ law will be capitalised where what is meant is (respectively) the legal traditions deriving from Roman and English law; ‘civil’ and ‘common’ law will be used without capitalisation where what is meant is (respectively) the non-criminal part of private law and the unwritten law of the land. This distinction is useful in, for instance, making the point that while Scotland is not a pure Common law system, it nonetheless has a common law (comprising, amongst other things, much of private law). 3 Lord Rodger wrote of an enthusiastic desire among the nineteenth-century Scottish mercantile classes for a UK-wide codified commercial law, citing hard-headed commercial pragmatism as the motivation: see A Rodger, ‘The Codification of Commercial Law in Victorian Britain’ (1992) LQR 570, 571–72.

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The Scottish legal fondness for taxonomy and principle produced, in the past, a tradition of so-called Institutional Writings (comprehensive attempts to state the law, some of them in quasi-codal fashion), which came to be looked on as authoritative statements of the law, and it continues to generate, in the present day, occasional suggestions that the private law of Scotland would benefit from codification.4 Recent dramatic political developments (a devolved Scottish Parliament, the rise in fortune of the Scottish National Party, and a close result in a 2014 Scottish independence referendum) have added a further dimension: a growing sense of national self-identity can often bolster calls for codification, an obvious comparison being the way in which the triumph of nineteenth-century French, Italian, and German nationalism led to the adoption of civil codes in each of those nations. The aim of this chapter is to explore what codification of Scots private law might mean (as well as what it would not), to analyse the merits and drawbacks of any such development, and to assess the practicability and likelihood of such an eventuality. Though any Scottish codification would be unlikely to impact directly on the legal systems of the Common law world, my analysis of some of the fundamental issues at stake in any codification of Scots law might well prompt reflections in the minds of Common lawyers as to the virtues or dangers of any possible codification of their own legal systems.

II. What Is Codification? To begin with, an obvious and basic question presents itself: what is meant by ‘codification’ of private law?5 There is no single concept of codification, but in using the term I have in mind a comprehensive (or nearly comprehensive) placing of private law—and I shall focus in this chapter on civil rather than criminal law codification—onto a legislative footing, so that the structure, principles, and rules of the law would all be contained within a single legislative instrument, the Civil Code. So-called codifications of specific parts of Scottish (and UK) civil law6 have already been undertaken—this happened most prominently within the field of commercial law in the nineteenth century7—though the legislative style of such partial codifications, and the interpretative approach adopted towards the codified statutes so enacted, lies squarely within the traditions of the Common and not the Civil law. Any future Scottish Civil Code might represent a continuation of this nineteenth-century tradition, albeit with the more ambitious aim of being (largely) comprehensive of the entire

4 My Edinburgh Law School colleague, and former Scottish Law Commissioner, Professor Eric Clive was for many years a driving force behind a Scottish Civil Code Project: see further E Clive, ‘The Scottish Civil Code Project’ in H MacQueen, A Vaquer, S Espiau (eds), Regional Private Laws and Codification in Europe (Cambridge, Cambridge University Press, 2003) 83–101. That project met with hostility from some practitioners and members of the judiciary, as well as political apathy, and it stalled. Professor Clive subsequently channelled his passion for codification into the Draft Common Frame of Reference project (‘DCFR’) (he was one of the editors of the sixvolume DCFR). 5 The same question might be asked of the criminal law, or other parts of the law. 6 They have been so called in the long titles of relevant statutes: so, for instance, the long title of the Bills of Exchange Act 1882 is ‘An Act to codify the law relating to Bills of Exchange, Cheques, and Promissory Notes’. 7 See further Rodger (n 3).

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civil law. However, on the alternative approach I consider in this chapter, codification would not mean simply consolidating all existing statutory law into one vast piece of legislation, and tacking on further provisions to place the remaining unenacted common law onto statutory form—what I call a ‘maxi statute’ approach—it would aim rather for a Code whose provisions were at a higher level of abstraction, and drafted in a more succinct style, than one finds in existing statutory law, one leaving room for gap-filling and judicial discretion (issues I discuss later). What would be produced would be a new form and style of legislation, inspired by the Civilian tradition of codification. Such a Code might amend and update existing legal rules, though that would not be a necessary feature of any codification. So, why might one support or oppose codification of the civil law? The arguments for and against require consideration.

III. For Codification A number of things may be said in favour of a codification of private law (most of them applicable in other Common law/mixed legal systems, not just the Scottish legal system). First, it would clarify currently unclear or ambiguous legal rules, and provide precisely worded and more easily understandable law. This, of course, can be a virtue of legislative enactments in general, and it is not one which can be claimed for codification alone, albeit that the specific style of codification which I propose (see below) would involve more succinct expression of legal rules than one finds in current Common law style legislation. Second—and this would follow only from a more Civilian style of codification, not from a maxi-statute approach—it would reduce the overall volume of written law, producing a corpus of civil law which had the virtue of greater brevity. The phenomenon of ever more lengthy statutes is a manifestation of a tendency to over-regulate, deriving from a systemic legislative tendency to attempt to provide for all eventualities in law. The end result is an avalanche of laws, one which restricts personal liberty and can be perceived by individuals as diminishing their overall quality of life. Codification can act as a counter-weight to overregulation,8 because Codes tend both to be shorter documents and to allow for gap-filling by courts. Third, a Code dealing with all, or most, areas of the civil law would provide a single locus for members of the public, legal practitioners, and courts to discover the law. It would thereby increase ease of access to justice, and remove difficulties legally unqualified individuals face in searching for the law. A Code cannot turn members of the public into legal experts, but it can at least furnish them with a single starting point for understanding their rights, duties, and remedies, in order to apply them to their specific circumstances. Fourth, the adoption of a Code would provide answers to some important legal issues not currently determined by the law. Scotland is a small jurisdiction,9 one in which much

8 See A Rahmatian, ‘Codification of Private Law in Scotland: Observations by a Civil Lawyer’ (2004) 8 Edinburgh Law Review 31, 53. 9 The population of Scotland is approximately 5,300,000, which is roughly equivalent to that of Colorado or Minnesota in the USA, and a little less than the Australian state of Victoria.

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of our private law is non-statutory in nature. Some basic rules of the law have yet to be fully settled by the courts (and hence generate a deal of academic disagreement), and, given that only a small number of relevant cases arise in relation to individual issues over time, the determination of the basic rules is a slow process (sometimes helped along by the Scottish Law Commission (‘SLC’)). This problem is likely to be exacerbated in the future:10 adjudication and arbitration are taking more cases out of the hands of judges, and recent increases to the monetary limits of the jurisdiction of the (lower) Sheriff Court will mean even fewer cases coming before the (higher) Court of Session and in consequence less binding precedent being created. A dearth of relevant case law inevitably leaves some legal questions unanswered. I have written on a number of occasions about one such issue: the question of whether, following reduction or rescission of a contract, a claim for the return of money or some thing passed under the contract gives rise to a contractual remedy or one lying in unjustified enrichment. It is absurd that we have no clear answer to this basic question of remedial entitlement. A Civil Code could easily remedy this; in the absence of one, we may be waiting indefinitely for a relevant court judgment or any statutory settlement of the issue. Another area where sufficient clarity is lacking is in relation to third party rights under contract (ius quaesitum tertio): the current Scottish law rests on old authorities, some of them at odds with each other, so much so that evidence exists that Scottish law firms are recommending the use of English law (with its modern third party rights statute) as the governing law for some sorts of contractual relationships, in order to avoid the confused Scots law.11 This is a lamentable state of affairs. A healthy system of private law should have neither holes nor glaring uncertainties in it. Fifth—and this follows from the first and fourth points—a reduction in unclear issues and the determination of uncertain issues which would follow from codification should reduce the amount of litigation, and therefore provide economic savings over time. By contrast, in the existing legal environment, private parties bear much of the economic burden of law reform, as litigants must pay for judicial determination of disputes relating to a host of uncertain or unanswered legal issues. Sixth, a Code would reduce the amount of time wasted by academics, practitioners, and courts, in trawling through the vast number of old and often inaccessible case reports, as well as the ever-increasing number of new precedents, in an attempt to discover the law12 or, in the case of some academic publications, to build up a legal arsenal for deployment

10 Of course, at the other end of the scale, matters can be just as problematic. US Common law is drowning in new cases, and the internet has made the problem even worse. It is impossible to cite in litigation even a tenth of the potentially relevant US cases, and it might well be better for those practising law if much of the case law were not publicly available. Too much precedent can be as troublesome as too little. 11 The concerns of the legal profession are documented in a blog post by a Scottish solicitor: see D Mathie, ‘Third Party Rights—Scots Law Stuck in the 17th Century’ (August 2010), available at: https://brodiestechblog. wordpress.com/2010/08/26/third-party-rights-%E2%80%93-scots-law-stuck-in-the-17th-century/. The Scottish Law Commission is aware of the problem, and has persuaded the Scottish Government to bring forward a law reform Bill in this area of law. Scottish Law Commissioner, Professor Hector MacQueen, has previously written on the subject of third party rights and codification: see H MacQueen, ‘Third Party Rights in Contract: A Case Study of Codifying and Not Codifying’ in L Chen and C van Rhee (eds), Towards a Chinese Civil Code (Leiden, Brill, 2012). 12 ‘There is so much information—so many undigested cases available at the click of a mouse—that the demand now is for this mass of raw information to be organised. The best way of organising the law is to have a code’: Clive (n 4) 84.

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in argumentation with other academics. I am not alone in my concern that too much academic time is spent in forensic investigation of what the law is, and in writing articles which laboriously trace the correct path of legal development through nineteenth-century and earlier case law.13 Such endeavours produce great scholarship, but they divert scholarly attention from matters which might otherwise usefully engage it. I have felt increasingly frustrated over the course of my own career by the amount of time I have had to spend in writing articles in which I have tried to argue that particular rules ought to be the position in Scots law, or (in my recent scholarship) that certain fundamental words used by our legal system to describe the nature of obligations should mean x or y. I gaze enviously upon other countries’ Civil Codes in which these matters are set out in a few lines—no hours of wasted time for academics working on those systems, arguing repeatedly about what the position should be. The problem seems to be even more acute in fully Common law systems: so, even now, there is still a debate about whether there is, or ought to be, an obligation of unjustified enrichment in the law. Australia is a prime culprit (you will excuse me for using that description) in perpetuating a debate about unjustified enrichment which ought to have been settled a long time ago. One does not find German, or French, or Portuguese, or Quebecois lawyers arguing about the basic structure of the law of obligations: it’s in the Code. I have also seen this problem manifested in my work as editor of a journal: all that scholarship produced on matters which could be easily settled in a Code. For instance, the 2015 volume of the Edinburgh Law Review contained a very scholarly contribution on the transmissibility of lease conditions to successor landlords.14 In it, the author had to devote t housands of words to explaining how muddled the law of Scotland is on this subject, before suggesting a new test to determine whether lease conditions transmit, one which will now have to await the right case, and the right well-read advocate, before it can be advanced in court.15 Justice is not served well by hard-to-find, old, and often badly decided, case law, nor should academic careers have to be spent dealing at length with problems which could easily be solved by codification. Of course, the other side of the coin is that, if one decides on a solution to a problem for the purposes of codifying it, one had better get the solution right (I return to that issue under the arguments against codification below). Seventh, codification can reduce a tendency for strong judicial personalities to mould the law in their own image. Codification can thus ensure greater consistency in outcome and fewer idiosyncrasies in the administration of justice. Though Common lawyers have a fondness for eccentric and forceful judicial personalities, there is a danger in veneration of the quixotic, pioneering judge. At its extreme, ad hominem law-making impedes consistent adjudication and the equal treatment of litigants, integral aspects of doing justice. Eighth, codification would anchor law-making power more clearly in the realm of the legislature, and would thus have the constitutional virtue of entrenching a proper s eparation

13 See for instance H MacQueen, ‘Invincible or Just a Flesh-Wound: The Holy Grail of Scots Law’ (2014) Legal Information Management 2, 10: ‘Far too often one is left making extrapolations from nineteenth century or earlier cases or drawing upon isolated (and not infrequently unreported) single judge decisions of more recent provenance’. 14 D Haughey, ‘Transmissibility of Lease Conditions in Scots Law—A Doctrinal-Historical Analysis’ (2015) 19 Edinburgh Law Review 333. 15 The transmission of leasehold conditions has been a topic of continuing uncertainty and academic endeavour: an Edinburgh Law School graduate, Dr Peter Webster, now at the English Bar, devoted an entire doctoral thesis to it.

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of powers by reducing the law-making capacity of judges. We live in a democracy not a kritarchy, and codification supports democratic values. Together, these arguments represent quite an arsenal in favour of codification. Whether they are persuasive must rest in part upon the strength of contrary arguments.

IV. Against Codification A number of arguments may be ranged against codification. First, it can be argued that there isn’t any real problem with our non-codified legal system (or at least no problem which can’t be solved with the judicious use of statutes)—so, why change things? The use of piecemeal statutory development, perhaps building up over time to become (in scope) a Code, might be said to be just as practical a way of tackling some of the problems I have identified with the legal system. The Law Commission of England and Wales is essentially taking this approach with its step-by-step approach to implementation of its suggested draft Criminal Code;16 a similar approach could be taken with the civil law. This is all true enough, though if we simply aim for a maxi-statute we would not get the kind of Civil Code I have in mind: we would not reduce the volume of legislation produced; we would not get the general structural and overarching elements a Code offers; and we would not move to the Civilian legislative and interpretative culture which a Code would usher in. Common lawyers might be very happy to hear that! But for a mixed system lawyer, these might count as losses. Second, a problem with codification is that bad rules may be codified with which we are then stuck. Codes tend (sensibly) not to be revised very often—it took around a century to revise the BGB—so if one implements what comes to be viewed as a bad or unclear rule, that will have a long-term negative effect on a legal system. Then again, appreciating this problem can be an impetus to ensuring a robust drafting procedure for a Code; moreover, even if they are easier to change, bad statutes sometimes hang around for as long as bad provisions in a Code. Third, it is sometimes said that codification would reduce the ability of judges to ‘do justice’ in hard cases. The essence of this concern is that a Code might unnecessarily hamper and restrain a court, requiring it to reach an unjust conclusion in the circumstances of a case because such circumstances had not been considered during the drafting of the applicable rule(s). This is a danger which, in order to be mitigated, would require a combination of the right degree of abstraction of the rules combined with a power given to the judiciary to gap-fill as necessary (this is discussed further at section VIII below). The danger could not be completely avoided, however, and any recurring problems would require amendment of the Code. Fourth, the experience of existing codified systems seems to show that some areas of law (such as delict/tort) are sufficiently complex and nebulous to make codification very challenging. How, for instance, does one clearly specific the rules on pure economic loss? Or the

16

See the Law Commission, A Criminal Code for England and Wales (Law Com No 177, 1989).

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essence of vicarious liability? Much of the law of delict/tort relies on the application of the concept of reasonableness (at multiple stages of the delictual/tortious analysis), making the drafting of provisions of a Code a fiendishly hard exercise. One may have to go either for a high level of abstraction, or else for a level of detailed rules that would rob the Code of brevity and ease of comprehension. Fifth, it could be said that codification (in the full Civilian sense) is not part of our legal culture—adopting it would thus represent Civilian imperialism, distorting the nature of our legal system and failing to respect our indigenous and complex legal culture. This criticism bites more in a purely Common law context, less so in a mixed legal one; however, it is true that codification would represent a dramatic reduction in the Common law element of the mixed system of Scots law, and hence represent a significant legal cultural shift away from the Common law tradition.17 This is a significant concern, and in order for it to be over-ridden one would need a clear sense that the benefits of a Civilian form of codification were manifest and weighty. In order to explore this last point of legal culture more fully, it will be helpful to undertake a brief examination of the legal culture of Scotland from the perspective of past and present codifying tendencies.

V. Codification in the Context of the Mixed Legal System of Scotland I began this chapter with a reference to the ‘mixed’ nature of the Scottish legal system. Much has been written about this, and it is to simplify matters to note only the Common Law and Civilian influences. To be more granular, the mixture contains not just those two elements, but also ancient native law, Nordic law, Canon law, the law of other European systems, and European Union influences (which, given the dominance of Civilian systems in the EU, can itself tend towards the Civilian). While the Common Law element came to dominate as the major influence from the time of the Union of 1707 onwards, the other older elements have not ceased to exert an influence on the overall character of the legal system, and the EU influence is one of growing significance. The Civilian and canonical influences in particular have both contributed to elements of the legal system which are heavily principled in nature and sometimes have at least a quasi-codal nature. Codification would represent a further development in an already long history of enthusiasm for law reform in Scotland. Admittedly, early attempts at systematic reform of the law did not get very far. So, for instance, Commissions for law reform appointed in the reign of Queen Mary (1542–67)18 and King Charles I (1625–49)19 failed to produce any law reform.

17 An observation I think justified by the more obviously Civilian feel of legal systems such as Louisiana, Quebec and Israel. 18 This Commission was ‘to issue, sycht and correct the lawis of this Realm’. 19 This Commission was to ‘convene in whatsoever places and at whatsoever times and how often as they shall think fit, and to revise and consider all the laws, statutes and acts of parliament of this kingdom made and enacted at any time bygone, as well as printed as not printed’.

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Significantly, one member of the Caroline Commission (of 1649) was James Dalrymple, later Viscount Stair, who became Scotland’s foremost so-called ‘Institutional Writer’. The tradition of Institutional Writers is a significant feature of the Scottish legal system. These writers constitute a group of legal authors writing between the seventeenth and nineteenth centuries, some of whose works came to be regarded as authoritative statements of Scots law and, more controversially, as themselves sources of law (and who were thus cited in legal argument alongside precedent).20 Many of these institutional works, consciously named and modelled after Justinian’s Institutes, can be said to represent an older, quasi-codal tradition in Scots law. In content they sought to be comprehensive statements of either the whole law or sometimes a large part of it (such as the criminal law),21 and to include structural and definitional elements such as one would expect to find in a Code. Their influence on the judgments of the courts, on the teaching of the law (they usually formed the basis of lectures to law students), and on Scottish legal culture generally, was substantial. Anyone familiar with Stair’s Institutions,22 Erskine’s Institute,23 or (especially) Bell’s Principles24 (the most code-like of the three) is at an immediate advantage in navigating and understanding a Civil Code. The willingness of the courts and practitioners to come to see them as sources of law demonstrates a receptivity to the concept of a single source from which the law could be read, digested, and applied. The impetus for codification did not die with the last institutional work (generally considered to be a work of Archibald Alison from 1833): in the late nineteenth and twentieth centuries it transformed into a parliamentary enthusiasm for maxi-statutes intended to embody the entirety of the law in specific commercial spheres. The fruits of this enthusiasm may be seen in legislation such as the Bills of Exchange Act 1882, the Partnership Act 1890, and the Sale of Goods Act 1893.25 These were, it should be noted, statutes of UK-wide application: the late nineteenth-century enthusiasm for maxi-statutes was an English as well as Scottish phenomenon. However, calls for wider, general codification26 did not succeed. In more recent times, there have been signs of continuing enthusiasm for modern minicodifications. In my own field of obligations law, one may note the very first joint project of the newly formed UK Law Commissions: a joint Scottish-English Contract Code.27 In that specific instance, the enthusiasm for codification did not bear fruit (a result not lamented

20 For consideration of their works, see J Cairns, ‘Institutional Writings in Scotland Reconsidered’ in A Kiralfy and H MacQueen (eds), New Perspectives in Scottish Legal History (Glasgow, Frank Cass, 1984). 21 See A Alison, Principles of the Criminal Law of Scotland (London, W Blackwood, 1832) and his Practice of the Criminal Law of Scotland (London, W Blackwood, 1833). 22 J Dalrymple (Lord Stair), The Institutions of the Law of Scotland (1st edn 1681; 2nd edn 1693, repr 1981, Edinburgh and Yale University Presses). 23 J Erskine, An Institute of the Law of Scotland 1st ed (Edinburgh, Bell & Bradfute, 1771). 24 J Bell, Principles of the Law of Scotland (1st edn 1829; 4th edn 1839, repr 2010 by the Edinburgh Legal Education Trust). 25 See further Rodger (n 3). 26 H Goudy, A Mackay, and R Campbell, Addresses on Codification of Law (Edinburgh, Banks & Co, 1893). 27 The project ran from 1965 until 1973. The proposed Code was eventually published (in draft form) in H McGregor, Contract Code: Drawn up on behalf of the English Law Commission (London, Sweet & Maxwell, 1994). There is some discussion of the failed Code in H MacQueen, ‘Glory with Gloag or the Stake with Stair: TB Smith and the Scots law of Contract’ in E Reid and D Miller (eds), A Mixed Legal System in Transition (Edinburgh, Edinburgh University Press, 2005) 138, 172.

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by some English commentators),28 but the more recent (English and Welsh) Law Commission plan for a Criminal Law Code is being slowly fulfilled, step-by-step, through the passage of successive acts which might eventually be formally connected into a single Code.29 In Scotland, a Draft Criminal Code for Scotland, privately authored and published under the auspices of the SLC30 as a contribution to law reform debate (rather than an official proposal for law reform), did not progress into any concrete legal reform, but the SLC’s current on-going reform of portions of contract law might develop in time into a wider Contract Code, though progress here is at a modest pace.31 What of a European Civil Code? The Draft Common Frame of Reference (DCFR) was (and may still be) an early manifestation of what such a Code might look like. English response to the idea of a pan-European Civil Code has been, for the most part, hostile;32 Scottish response has generally been more favourable (a fact not overlooked by English commentators),33 a reflection of a mixed legal system culture more attuned to the Civilian tradition. But codification at the European level would obliterate the legal manifestations of local culture which national codes represent,34 and would not be without cultural ramifications: as the historian John Davies has remarked, ‘In Scotland, the indigenous law was (and is) the corner-stone of the principle of the common citizenship of the entire population.’35 In any event, the likelihood of the DCFR acting as the basis for a pan-European Civil Code now looks slim (a more limited instrument, harmonising online sales law and perhaps digital content, being a little more likely); if codification is to occur, it is likely to be at the Scottish rather than the European level. Overall, I think it is fair to say that the Scottish legal tradition is one which has been, and continues to be, more accommodating towards the potential codification of the civil law. Our law has been historically influenced by Roman law, which in the Justinianic period was codified; modern Scots lawyers continue to demonstrate a fondness for principles of

28 See, for instance, G Treitel, Some Landmarks of Twentieth Century Contract Law (Oxford, Oxford University Press, 2002) 8. 29 The Law Commission, A Criminal Code for England and Wales (Law Com No 177, 1989). The Commission has since been producing a succession of consultation documents and reports whose titles begin with the phrase ‘Legislating the Criminal Code’. This has been said by the Commission to be in implementation of ‘a policy of reviewing areas of criminal law so that one by one they would be modernised, where appropriate, before being assembled into a code’ (see www.lawcom.gov.uk/project/legislating-the-criminal-code/). 30 Published in 2003, and available online at www.scotlawcom.gov.uk/files/5712/8024/7006/cp_criminal_code. pdf. For commentary see T Jones, ‘Towards a Good and Complete Criminal Code for Scotland’ (2005) 68 Modern Law Review 448. 31 Professor MacQueen tells me that, in his current role as the Scottish Law Commissioner dealing with contract law reform, he hopes to tackle the legal rules surrounding error and illegality, both currently in a lamentably confused state, before his term as a Commissioner expires. 32 Though there continues to be some English support for the more limited goal of an English contract code, with one view being that this may assist in repelling demands for pan-European codification: see A Tettenborn, ‘Codifying Contracts—An Idea Whose Time has Come?’ (2014) 67 Current Legal Problems 273. 33 See P Giliker, ‘The Draft Common Frame of Reference and European Contract Law: moving from the “academic” to the “political”’ in J Devenney and M Kenny (eds), The Transformation of European Private Law (Cambridge, Cambridge University Press, 2013) 23, 28, noting the generally positive view towards the DCFR expressed by Laura Macgregor in her 2009 report on the DCFR to the Scottish Government (available at www. scotland.gov.uk/Publications/2009/03/05095249/0). 34 See Rahmatian (n 8) 55. 35 J Davies, A History of Wales (London, Penguin, 1998) 168.

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law (of varying degrees of abstraction) capable of being encapsulated within Codes; and legal scholars have taken the view that accommodating Scots law within a wider European harmonisation and perhaps codification would not be as challenging as it would for English law, given the existing Civilian elements in much of our private law.

VI. What Might a Scottish Civil Code Look Like? What would be the content of any Scottish Civil Code? Writing in 2004, Clive proposed that a Scottish Civil Code might be comprised of the following parts: Part 1—General Part 2—Natural persons Part 3—Juridical persons Part 4—Unincorporated associations Part 5—Family law Part 6—Rights and obligations in general Part 7—Contracts Part 8—Unjustified enrichment Part 9—Delicts Part 10—Other obligations Part 11—Property Part 12—Succession Part 13—Trusts Part 14—Private international law This seems a solid basis on which to base a Code, though I want at this juncture to venture some additional details and to suggest some (minor) changes. I would want to ensure that the General Part tackled what I called earlier the ‘structure and principles’ of the law. It would include a statement of what is comprised in the civil law, and of the relationship of the branches of the law to each other; it would also include definitions of fundamental concepts and structural language.36 What about a reference to equity, or good faith? I should have thought that some inclusion of these concepts, and their role in the Code and its application, would be important, though it is likely that much of the definition of the concepts would have to be left to un-codified doctrine and practical development in the work of the courts. I would place Clive’s Part 6—Rights and Obligations in general—earlier: one needs to know these rules before addressing family law, given that it imposes duties on family members and in so doing gives other family members rights. I would have a separate part on (unilateral) promise, which is after all a distinct obligation in Scots private law. I would also include a separate, albeit short, part on benevolent intervention (negotiorum gestio).

36 The sort of language I analyse in my forthcoming book Obligations: Law and Language (Cambridge, Cambridge University Press, expected 2017).

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Some parts of our civil law would have, under the present devolved constitutional s ettlement, to be omitted from a Code, as they are matters reserved to Westminster. Partnership is one which it might otherwise have been desirable to have included in a Code (especially if agency is going to be included, which I suspect it ought to be, somewhere); another is unincorporated associations.37 Company law is currently reserved to Westminster, which it can happily keep, in my view—company law is very complex and detailed, and I think it makes sense to have a UK regime on company law. In any event, even if company law were devolved, one would wish it to be the subject of a separate Corporate Code.38 As the Scottish Parliament takes more powers to itself—as it seems likely to do in a piecemeal fashion over the coming years—some areas currently outside any Code might be brought within it, such as sale of goods39 and consumer remedies. As for the drafting of the provisions, the aim of what one is doing with a Code in the Civilian tradition, and hence the language used and the interpretative techniques to be applied to it, is not the same as in statutes.40 As the Civilian-trained Dr Andreas Rahmatian of Glasgow University has written in the Edinburgh Law Review: ‘Scots statutes, both Acts of the UK Parliament for Scotland and Acts of the Scottish Parliament, are unadulterated Common Law creations in respect of their drafting style, level of abstraction, and regulatory detail, and, due to their nature, they are arguably not appropriate as a basis for a successful codification.’41 That strikes me as undoubtedly the case. A number of challenges would present themselves, including the treatment of parts of the law having a mixed private/public nature (Clive has previously mentioned the example of the law on adults with incapacity),42 and of matters which it is difficult to locate in any one branch of the law—take, for instance, the matter of the regulation of termination of pregnancy (assuming that this area of law is eventually devolved to the Scottish Parliament, as some wish it to be): would a provision on this matter go into a Civil Code? It is a subject partly about family law rights, partly about personality rights, and partly about medical law—would it qualify as a civil law issue and thus go into any Civil Code? There is no obviously correct answer.

37 The SLC’s Report on Unincorporated Associations (Scot Law Com No 217, 2009) remains unimplemented at the present time, such implementation requiring UK Government action. I am informed that the SLC made representations to both the Calman (2007–09) and Smith (2014–) Commissions that both partnership and unincorporated associations should become devolved areas, but these overtures have not as yet borne any fruit. 38 The same could be said of intellectual property law, which is the subject of a separate code in France (1992, with later revisions). 39 With an ongoing attempt to harmonise sales law at a European level (see the proposed Common European Sales Law), there might well be opposition to devolution of sales law if there were any danger of that creating different law in Scotland and England. The business community would be likely to have strong objections to any differentiation in Scottish and English sales law beyond the present minor differentiations in the UK Sale of Goods Act 1979. 40 This has been commented upon in the past by the Law Commission of England and Wales (‘Codification, as we see it … calls for the embodiment of the law in one or more statutes of a type different from the British pattern’: Seventh Annual Report (Law Com No 50, 1971–72) para 3) and by the Scottish Law Commission (‘Parliamentary draftsmen in future may sometimes be called upon to alter radically their style of presentation when the subject matter is considered appropriate for codification’: Scot Law Com No 28, 1973 para 10). 41 Rahmatian (n 8) 35. 42 Currently found in the Adults with Incapacity (Scotland) Act 2000. The Act has a public law aspect, in that it provides for the office of a Public Guardian to oversee the system of powers of attorney over incapable adults.

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What also about EU law of a private law nature? One evident problem relates to EU Regulations: these are directly applicable law within member states and cannot be reproduced in provisions of national law. So, anything that is the subject of a Regulation in EU law could not appear within a national civil code. This means, for instance, that those jurisdictional matters which are the subject of EU Regulation—such as the so-called ‘Brussels II bis’ Regulation,43 which determines which court has jurisdiction in matrimonial matters—could not go into a Civil Code. Other examples of Regulations of a procedural nature exist.44 However, as such Regulations concern procedural matters, this should not be problematic for any Code, as one would not wish, I think, largely procedural matters to go into a Civil Code in any event; matters of substantive rather than procedural EU law tend to be left to EU Directive, allowing them to be implemented in national law and hence in any Civil Code if that were thought appropriate. The proposed exit of the UK from the EU would of course remove this problem. It would be possible to incorporate into a Civil Code existing maxi-statutes having a civil law nature, though as many such statutes have a mercantile or company law nature, one would probably wish to leave those to a separate Commercial or Company Code. If existing statutes were to be incorporated into a Civil Code, some alteration to their provisions might well be necessary to give them the higher level of abstraction consistent with the nature of the Code I have in mind. This leads me on to the more general question of the extent to which one would wish to use the process of codification as an opportunity to reform existing areas of law (whether existing statute or common law). Doing so would permit much desirable legal development, but it would slow down the process of codification. The alternative would be adopt a Code which one might already foresee as requiring amendment at a later (perhaps not too distant) date. In pondering this issue, it must be admitted that some parts of existing private law could clearly do with improvement, and not just the common law. For instance, and again to return to a contribution in the 2015 volume of the Edinburgh Law Review, Dr James Goudkamp has written45 of the uncertainty surrounding the apportionment of blameworthiness under section 1 of the Law Reform Contributory Negligence Act 1945: as the UK Supreme Court case of Jackson v Murray46 shows, the lack of clarity in the Act as to whether apportionment is based upon causal potency, relative blameworthiness, or perhaps some additional factors, continues to create problems for the courts and to give rise to differing judicial approaches. The matter could be resolved with a relatively short additional provision in any Code. But would such addition require lengthy consideration and consultation before it were affected? That is certainly the existing Law Commission model of law reform, and it is very doubtful that one would wish to bypass such a consultation before implementing any reform in a new Code. Multiply that one issue many times, and the task of updating more than a few relatively uncontroversial rules before codification would be an impractical exercise, if it were hoped to achieve codification on anything other

43 Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility. 44 For instance, Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters. 45 J Goudkamp, ‘Apportionment of Damages for Contributory Negligence: Appellate Review, Relative Blameworthiness and Causal Potency’ (2015) 19 Edinburgh Law Review 367. 46 Jackson v Murray [2015] UKSC 5.

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than a long-term timescale. This issue of possible reform before codification is one issue among a larger collection that can be gathered together under the broad question which forms the heading of the next section of this chapter.

VII. How Practical Would Codification Be? The questions surrounding the practicalities of any codification of private law (and these relate to any system considering such a development, not just Scotland) are numerous.

A. Support/Opposition to Codification First, there is the question of support for, or opposition to, codification. It has been said that the various branches of the legal profession have traditionally been opposed to any suggestions of codification. Opposition has been reported among some members of the bench,47 though that may be changing over time. As to the Bar/solicitors, Clive reported a ‘mixed’ view, while adding that ‘there is a tide flowing in favour of codification’. It would be hard to assess the current accuracy of that characterisation in the absence of any recent data of which I am aware concerning opinions in the legal community at large. What of the view of legal academics? Again, Clive commented that opinion among legal academics ‘appears to be mixed’.48 From my own informal conversations with colleagues, that would still seem to be an accurate representation of academic opinion in 2016, although (significantly I think) a number of those who have had personal experience of law reform work have come to adopt strongly or moderately pro-codification views.49 Going beyond the legal profession, an interest might be taken in codification by some pressure groups and similar organisations keen to promote legal reform. It is hard to predict specific opinions among such bodies, though I should have thought that a clear, single statement of the law would have been welcomed by most groups with an interest in civil justice.

47 Rahmatian (n 8) 56, cites the negative view (given in 2001) of codification of the then Lord President Rodger, while noting that this appears to have proceeded from the assumption that any Code would follow the traditional Common law drafting. 48 Clive (n 12) 85. 49 See, for instance, former Law Commissioner G Gretton, ‘Of Law Commissioning’ (2013) 17 Edinburgh Law Review 119, 132 (‘on balance, I think the arguments of the codifiers are better’); former Law Commissioner, K Reid, ‘Scots Law and its Edinburgh Chair’ (2014) 18 Edinburgh Law Review 315–40, who welcomes the increasing incursion of legislation into private law, calling it ‘virtual codification by stealth’ (339); and current Law Commissioner Professor Hector MacQueen (n 13) at 10, who, in musing on a specific possible statutory clarification of an existing aspect of Scots contract law, remarked that ‘[i]n some ways it could be politically more straightforward to put the matter on the legislative agenda of the Scottish Government and the Scottish Parliament as part of a larger and more ambitious scheme such as a contract or more general private law code …’. A more non-committed and open-minded view is adopted by current Commissioner Dr Andrew Steven, who remarked in a paper delivered at All Souls College, Oxford, in 2014 that ‘I consider that as a Law Commissioner it is my responsibility to keep codification under active consideration’ (‘Codification: A Perspective from a Scottish Law Commissioner’).

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Crucial in any movement for codification would be political support. Is there any? Clive reported in 2004 that his attempts to persuade the Scottish Government to advance the Civil Code Project had not been successful. In September of 2015, I made overtures to the Scottish Secretary for Justice, Michael Matheson MSP, a scientist by training rather than a lawyer (which I imagined might have been a good thing, so far as advocacy of codification is concerned), enquiring as to possible Scottish Government interest in a Civil Code. The response was a letter to me from the Justice Directorate expressing the view that the preparation of a Civil Code would be a ‘significant undertaking’ requiring ‘substantial resources’, that the Government did not routinely receive any correspondence about a Code or calls asking for one to be implemented, that there was ‘no clear consensus about codification’ but rather ‘strongly divided views amongst the legal profession’, and consequently that the Government was not considering the introduction of a Civil Code.50 It is striking that there was no mention in this letter of any of the matters which I suggested earlier might favour the introduction of a Code.51 It seems then that, at present, the Scottish Nationalist administration, having other legislative priorities,52 is no more receptive to the idea of codification than Clive found the Labour-Liberal Democrat coalition to be at the turn of the new millennium. Whether the Government might be prevailed upon to change its view by further lobbying seems doubtful. I suspect that wider public support would be needed to bolster any such lobbying. What then of any such public support? Clive’s assessment was that ‘there is not currently a perceived need for codification … There is no demand from the general public’.53 However, even though he thought there to be no demand as such (which would seem still to be the case, if the Government’s mention in its letter to me of a lack of public interest may be taken as accurate), he suspected that the public would favour codification were it to be on offer, given that the public already appeared to prefer statute to case law (a preference suggested as resting upon the relative ease of discovering the law from statutes).54 I think that was (and remains) a fair assessment. The public, I suspect, prefers legislation because it is easier to read and because direct public access to court judgments from before the early 1990s is very difficult; there is certainly a steady stream of public petitions to the Scottish Parliament asking for legislative reform of areas of the law. The public might then be brought on-side, but it is challenging to see how sufficient public interest could be generated, short of either identifying a Parliamentary champion or else starting and finding support for a public petition for a Civil Code.

50 Letter from Jill Clark of the Scottish Government’s Justice Directorate, Civil Law and Legal System Division, dated 13 October 2015 (ref 2015/0031302). 51 One might speculate that this exemplifies an attitude noted by former Law Commissioner, Professor George Gretton (n 49) 132: ‘Tell [politicians] that the law needs to be made simpler, more accessible and more coherent and they look bored.’ 52 The result of the increased devolutionary responsibility which the new Scotland Act 2016 will bring to the Scottish Parliament (including increased taxation and welfare powers and responsibility) may mean less Parliamentary time for existing responsibilities, including reform of private law. 53 See E Clive, ‘Thoughts from a Scottish Perspective on the Bicentenary of the French Civil Code’ (2004) 8 Edinburgh Law Review 415, 418. 54 Clive (n 12) 86.

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B. Preparatory Steps and Implementation If sufficient support could be generated among the public, and in the political and legal worlds, to enable a Civil Code project to be advanced, a number of facilitative matters would require consideration. Would public consultation form part of the process of forming the draft content of the Code? To a large extent, that would depend upon whether the plan were largely just to replicate the existing law (in which case, consultation might extend to no more than whether the idea of codification was a good one) or whether the opportunity would be taken to reform parts of the law (in which case consultation would have to be more extensive, both in scope and likely timescale). Who might oversee the task of drafting a Civil Code? Such a task would be too large for Parliament to attempt. In theory it could be done by the SLC. However, the sheer scope of the task would likely necessitate dedicating the entire work of the Commission to the project for a number of years, which might well be thought undesirable, given the neglect of other potential areas of law reform which would result. I strongly suspect therefore that the first step in any Civil Code project would be for the Government to pass legislation establishing a dedicated Civil Code Commission (‘CCC’), to which would be given the task of overseeing the entire project from beginning to end (the end being the presentation of the final draft text of the Code to Parliament for implementation). The CCC would ideally be composed of 15 to 20 members, comprised of a mixture of legal practitioners, academics, members of the judiciary, perhaps select representatives of the wider public or interested groups,55 and maybe even individuals from other legal jurisdictions with prior experience of drafting civil codes. There would be a chairperson, perhaps either a senior academic or a senior judge, the work for this person being likely to extend to a full time or near full time commitment. There would also have to be a secretary to the CCC, whose job would be to arrange its meetings, take minutes of proceedings, and deal with any correspondence and media work. Dedicated, full-time legal researchers might also be thought desirable (they are certainly a necessary and invaluable part of the work of the SLC). Dedicated physical premises might not perhaps be needed, as the CCC members could meet in rooms provided by the Scottish Parliament, Government, or SLC. The task of drafting could conceivably be undertaken by Scottish parliamentary counsel, following instructions (and perhaps tentative drafting) by members of the CCC, but expertise might have to be sought from those more familiar with drafting Civilian-style legal instruments. As the first task of the CCC, policy directions might have to be sought from Parliament (as happened in the Netherlands before the 1947 revision of its Civil Code)56 in order for a clear steer to be given by the legislator on major policy issues affecting the content of the Code. To the CCC would fall the job of undertaking any necessary consultations with the legal profession and the wider community; comparative research on other civil codes; and

55

For instance, Citizens Advice and similar groups with an interest in the law. Fifty questions were posed to the Dutch Parliament by Professor EM Meijers, to whom the task of overseeing the revision had been entrusted: see further J Dainow, ‘Civil Code Revision in the Netherlands: the Fifty Questions’ (1956) 5 American Journal of Comparative Law 595. 56

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discussion and settlement of policy details not subject to parliamentary direction. The task of preparing preliminary drafts of different parts of the Code could be allocated to CCC members with expertise in the specific field in question. How long would the work of the CCC last? The first draft of the German Civil Code took about 15 years to produce, after which the draft was rejected; a revised draft took a further eight years. In the Philippines (a mixed legal system like Scotland), a Civil Code Commission formed in 1947 led to the adoption of a Code five years later. In Scotland, given that a Civil Code would be an entirely new enterprise, it is hard to envisage the task taking less than 10 years to complete. Being more precise than that is difficult: the time to be taken for debates over policies and over potential drafting difficulties are two variables which it is hard to assess. I can conceive of the possibility of the Code being brought into effect in stages, though that would be a less preferable route: staged implementation would make it more difficult, though not impossible, to include cross-referencing between parts of the Code (eg, between the obligations and property parts) given that any such cross-referencing might be to parts of the Code which would not yet be in effect. Other systems have codified piece-by-piece,57 or revised in such a manner, so I wouldn’t wish to write off such an idea for my own system, but given the Civilian drafting and interpretative methodology I propose, any staged implementation ought not simply to be a succession of maxi-statutes in the traditional Common law mould. Once a Code were adopted, any subsequent reform would also take some time: the Civil Code Reform Commission of France was formed in 1945, the first part of its definitive draft not being presented until eight years later;58 in Louisiana, things moved a little more quickly: its revised Civil Code of 1870 took two years to draft and promulgate.59 One would hope that, however long it might take, any revision of a Scottish Civil Code would not have to occur for some considerable time. This would be dependent on legislators resisting the urge to tinker with the Code in the way that they tend to tinker with ordinary statutes and subordinate legislation, something that would require a cultural shift on the part of legislators, and a supreme effort to ensure that the text of the Code as adopted had been fully considered and carefully drafted. Inevitably, there might be periodic minor amendments. As to likely costs associated with the CCC, I think we can envisage costs in the several hundreds of thousands of pounds (likely in the upper range). The chairperson would require to be salaried, as would the secretary (and any researchers); other Commission members would have their expenses met, and perhaps even receive an honorarium, but would not I think be otherwise remunerated. This represents only my vague impression of likely costs; a more detailed budgetary costing would have to be undertaken.

57 This was the path taken by another mixed legal system, Israel: see further E Zamir, ‘Private Law Codification in a Mixed Legal System—The Israeli Successful Experience’ in J C Rivera (ed), The Scope and Structures of Civil Codes (Dordrecht, Springer, 2013) 233. Zamir talks (235) of an Israeli process of ‘codification by instalments’, one which led ultimately to the gathering together of the various enactments (drafted in a Civilian way) into a single draft Civil Code (currently still making its way through parliamentary procedure). 58 See J Dainow, ‘Preliminary Report of the Civil Code Reform Commission of France’ (1955) 16 Louisiana Law Review 1. 59 See A Yiannopoulos, ‘The Civil Codes of Louisiana’ (2008) Tulane Law Review 1.

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C. Challenges for the Adoption and Application of a Civil Code I have mentioned already some challenges relating to the potential content of any Civil Code (including how to deal with content having a mixed public-private nature, and problems caused by EU regulation of areas of private law). Some other challenges would present themselves to the CCC and to courts interpreting and applying the provisions of the Code, among them the following: (a) A change in drafting culture. As mentioned earlier, a Code (as I envisage it) would not simply be a very long statute. Careful thought would have to be given to the level of abstraction of the provisions of the Code; the existing British style of statutory drafting, which is to be as comprehensive as possible once the scope of the intended provision has been determined, would be inappropriate. Some existing Codes approach certain questions at (to my mind) too high a level of abstraction: one example with which I suspect others will agree is the very truncated section on delict in the French Civil Code, a mere five articles. The consequence is that much has had to be left to the courts to work out, including matters that really should have been in the Code itself. (b) A change in interpretative culture. It has been said that in Civil law countries, the ‘rules of construction allow for more interpretative flexibility’, the canon of construction comprising ‘the literal (or grammatical) interpretation, the systematic (or systematiclogical interpretation), the historical interpretation, and the objective-teleological interpretation’.60 Judges steeped in the Common law tradition of interpreting statutes would require to undergo a change in mind-set if such a broader approach were to be adopted in relation to a Scottish Civil Code.61 The challenge of achieving this change of mind-set should not be underestimated: Justice James Dennis, formerly of the Louisiana Supreme Court and now of the US Court of Appeals for the 5th Circuit, has remarked of the Louisiana legal system that ‘our courts have not adequately developed distinct techniques for interpreting and applying the civil code and dealing with judicial precedent in that process’.62 If that can be said of Louisiana almost 200 years after the introduction of its first Civil Code, then the process of developing in any postcodified Scottish legal system the necessary Civilian cultural mind-set might also be a lengthy one, given an existing Scottish legal environment in which (as in Louisiana) the Common law has been a strong counter-influence to the Civil law. (c) Settling the answers to big issues of principle before beginning the drafting process. There are important structural and doctrinal questions which determine the shape and content of the civil law in any jurisdiction; such questions would have to be settled before any drafting of the provisions of a Civil Code could commence. Such issues include: whether the system of property law is to be abstract or causal; whether concurrent liability in the law of obligations is to be permitted, and under what conditions; whether the harm in delict/tort is to be conceived of as a loss or interference with rights, or as

60

Rahmatian (n 8) 52. It has been suggested that this might be ‘one of the biggest stumbling blocks’ to codification, albeit that there is some familiarity with civilian interpretative trends and techniques because of EU law: see Rahmatian (n 8) 53. 62 J Dennis, ‘Interpretation and Application of the Civil Code and the Evaluation of Judicial Precedent’ (1993) 54 Louisiana Law Review 1, 1. 61

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Martin A Hogg injury traditionally conceived in physical and economic loss terms; whether unjustified enrichment is a subsidiary entitlement in obligations law, only available in the absence of other remedies; whether (to stick with unjustified enrichment) loss is always a prerequisite for a claim, or only with certain types of claim; whether there is to be a general action for the redress of unjustified enrichment, or a number of actions. These are only a few examples (culled mostly from my own field) of a host of structural and doctrinal questions which would need to be answered before drafting could begin. These are the sorts of questions on which public consultation would be of limited use, given their heavily doctrinal nature; some practitioner input might assist, as pre-eminently would that of the academic community. But, as I suggested earlier, the CCC might also choose to seek parliamentary guidance on some of these issues. Doing so is likely to ease the approval of a draft Civil Code by Parliament.63

To some eyes, the practical challenges in implementing a Civil Code would be too great. That is not my view, but I understand the concerns. If codification were not pursued, would there be any half-way house? One could of course, without adopting the changes to drafting and interpretative culture I have mentioned, and without implementing a single instrument, over time pass a number of large statutes, using a common framework of concepts and terminology,64 which together could aim to place the entirety of private law on a statutory footing. Doing so would however be to continue the tradition of over-regulation which is a feature of the modern law; moreover such large statutes cannot realistically be said to present the law in an accessible form. Other possibilities also present themselves: wider European codification (unlikely, I think) or harmonisation (more likely),65 national restatement, and consolidation (underused these days, due to other pressures on parliamentary time). What Scotland may choose to do is not necessarily what other systems might choose to do. Some of the practical considerations which I have ventured to suggest would arise in any plans for Scottish codification would be likely to arise in other systems (including, of course, questions of potential political and legal support). Admittedly, however, in any likely drive for codification in fully Common law systems it is almost unthinkable that the type of codification proposed would involve the change in drafting and interpretative culture I have suggested for Scotland; even more unlikely would be the possible abandoning of the doctrine of precedent which I am about to discuss.

VIII. What Should Happen to the Doctrine of Precedent? The use of case law to explain and develop the law has its proponents and opponents. Opponents argue that justice is not well served by sometimes hard to find, old, and occasionally

63

Though, over a five- to 10-year drafting period, one cannot discount a change of policy view in a legislature. Clive suggested this as a serious possibility: (n 53) 418. 65 One the various possibilities at European level, see J Devenney and M Kenny (eds), The Transformation of European Private Law (Cambridge, Cambridge University Press, 2013). 64

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badly decided, case law; proponents laud the flexibility that careful, measured development of the law through judicial decision offers. Whatever the merits or drawbacks, simply keeping the doctrine of precedent as it is, and applying it to a future Civil Code, would not be an option, unless what was called a Code were merely to be a maxi-statute, which I have argued it ought not to be. The doctrine of stare decisis is incompatible with Civilian-style codification:66 partly for the reason (explained more fully in the next paragraph) that Civilian methodology does not see case law as a fons juris (source of law), whereas stare decisis does (whether as a primary or secondary source may be argued), and partly because stare decisis is too limiting in its focus on the existing corpus of decided cases (by contrast, Civilian judicial methodology takes in, as also explained in the next paragraph, consideration of the values and principles of the relevant Code). One approach, if Scots civil law were codified, would be to adopt the methodology of the Civil law in relation to prior judgments, what is styled in French law (and other systems, including Louisiana) the doctrine of jurisprudence constante. Under such an approach, a previous judgment plays ‘only a supporting role’,67 the Code itself being the primary source of law. So, for instance, taking this approach, Article 1 of the Louisiana Civil Code states that ‘The sources of law are legislation and custom’, Article 4 adding that ‘When no rule for a particular situation can be derived from legislation or custom, the court is bound to proceed according to equity’. Under these Articles, case law is noticeably absent as a source of law, not being mentioned even as a secondary source. So what role does case law play under the doctrine of jurisprudence constante? The answer is that prior cases may serve as persuasive examples of the proper application of the law. In order to function this way, a case needs to ‘illustrate that the judge followed sound legal methodology in interpreting the law and applying it’.68 A part of such sound methodological approach involves making a decision which adheres as closely to the values of the Code as possible—this is the context within which the understanding of ‘equitable’ in Article 4 of the Louisiana Civil Code is to be understood. When a methodologically sound decision is identified and begins to be followed in later judgments, there develops a body of judgments treated as persuasive and styled jurisprudence constante (as representing, over time, a consistent approach to application of the law).69 This all sounds well and good, yet Judge Dennis has said of the doctrine of jurisprudence constante as it applies in Louisiana that ‘there has been little articulation of theory or methodology by which a judge can determine how influential a previously decided case should be in a subsequent case under the Civil Code’.70 By way of contributing to the development of an appropriate theory, he has argued for a tripartite methodological approach,71 based on three ideas: (i) logical subsumption—that is, the need to apply an outcome determined

66

That would not be to preclude its continued use in areas of law which were un-codified. Dennis (n 62) 3. 68 ibid 3. 69 The dynamics of legal evolution under systems using stare decisis and jurisprudence constante has been compared: see V Fon and F Parisi, ‘Judicial Precedents in Civil Law Systems: a Dynamic Analysis’ (2006) 26 I nternational Review of Law and Economics 519. 70 Dennis (n 62) 2. 71 ibid 8–14. 67

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by the Code if the circumstance at hand is subsumed with a codal rule; (ii) analogy— appropriate in those cases of gap-filling where the same competing interests have been regulated under another rule, and an analogical extension of the rule may thus be justified to the circumstances of the case; and (iii) ‘rulemaking’—appropriate in two cases, first where the Code itself refers a matter to the judge’s own judgment, and second in those gapfilling cases where no analogy can be drawn. In such rule-making decisions, however, the judge must still (as mentioned earlier) take account of the values and principles of the Code so that any judicial assumption of the legislative mantle should occur, in theory, within a tightly circumscribed sphere. Whether this specific tripartite classification of the desirable Civilian methodology is accurate or appropriate is open to debate. But it is unarguable that some sort of appropriate methodology would require to be developed in Scotland to guide judges on the correct use and application of prior case law if the doctrine of stare decisis were to be abandoned in favour of a jurisprudence constante approach. In this respect, though civil codes do not commonly specify within their own provisions how prior case law is to be used, a rule could in theory be included in any proposed Scottish civil code. Such a provision might state something like the following: 1. No judgment of a court applying or interpreting the provisions of this Code shall bind a court in any subsequent judicial deliberations. 2. Nonetheless, a consistent application or interpretation of the provisions of this Code in relation to any matter arising under it may [perhaps ‘shall’?] be considered persuasive by a court.

Any such provision would inevitably involve a degree of uncertainty: it would, for instance, be impossible to specify just how constante a series of judgments would have to be before becoming persuasive, or indeed the degree of persuasiveness attaching to any such series of decisions (perhaps, in practice, increasing in a degree commensurate with the volume of the prior consistent case law). Following codification, if the doctrine of jurisprudence constante were to be adopted, references to comparative case law, especially to English case law, would be likely to be largely confined to any gaps in the Code in relation to which it was thought that rulemaking was appropriate; even then, any comparative case law would need to accord with the values and principles of the Code. In recent years one of the great joys for British comparative lawyers has been the increasing use of judgments from other jurisdictions by Scottish and English courts. Would this beneficial comparative influence therefore be lost? I doubt it. References to comparative jurisprudence have typically featured in two sorts of circumstance: (1) where judicial law reform has been thought desirable (eg in abolishing the error of law rule in mistaken payment cases)—comparative law would presumably serve this role at the stage of drafting a Civil Code; (2) where courts have sought to fill gaps in the law— as explained above, gap-filling is considered one aspect of the Civilian methodological approach to prior case law, so comparative law would continue to play a role in cases of this sort in a codified system. In short, if jurisprudence constante were to be chosen over stare decisis, I don’t believe that we would lose the wisdom of the comparative Common (and Civilian) law which has been so important in the development of the jurisprudence of a small legal system like Scotland.

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IX. Comparative Codified Models In drafting a civil code, a CCC would of course have a wealth of comparative civil codes on which to draw when considering the structure, style, and content of any Scottish Civil Code. Modern Civilian codes (such as the new Dutch Civil Code, and recent East European Codes) are very likely to be thought useful comparisons, albeit most likely in translated form; one would also expect that the Codes of other mixed legal systems would be important sources, especially where (as in the case of Louisiana) the system in question is an English language one. What of the use of Common law codes for comparative drafting purposes?72 The socalled ‘codification’ of parts of UK commercial law in the nineteenth century has already been noted. This ‘codification’ was largely a putting into statutory form of the common law without the adoption of an evidently Civilian style in drafting, though in some of the statutes passed (such as the Bills of Exchange Act 1882) the brevity in expression comes close (and may in places even reaches) what one would be looking for in a Civilian-style Code. So some repetition of such existing law could feature in any Civil Code. Additionally, since the passage of the Law Commissions Act 1965, the Law Commission of England and Wales and the Scottish Law Commission have been required under the Act to concern themselves with ‘systematic development and reform [of the law], including in particular the codification of such law’ (emphasis added).73 What examples of this exist? The on-going step-by-step codification of English criminal law has already been mentioned, but in the civil law sphere there is only a limited pool of such codification upon which the CCC might draw for inspiration. In other parts of the Common law world, there are what are styled ‘civil codes’, for instance the California Civil Code. The tone of that instrument (and of similar instruments) is however largely that of a maxi-statute, and is unlikely to be of much assistance to the CCC. Australian Government plans for a Contract Code74 have stalled, so there appears (so far as I can see) to be no code-like Australian legislation in the civil law sphere upon which Scots drafters might draw; Australian criminal law is another matter, and both state and federal criminal law is developing in a codified direction.75 The SLC has already, in prior Discussion Papers and Reports, drawn on model law instruments such as the PICC, PECL and DCFR, and it is highly likely that a CCC would also take into account such model instruments in its deliberations on a draft Civil Code. The SLC’s willingness to draw on these model codes has been replicated by law reformers in other European legal systems: so, for instance, the contractual rules within the new Estonian Law

72 For a comprehensive historical survey of codification movements in the Common Law world, see G Weiss, ‘The Enchantment of Codification in the Common-Law World’ (2000) Yale Journal of International Law 435. 73 Law Commissions Act 1965 s 3(1). 74 Discussed by W Swain, ‘Contract Codification in Australia: Is it Necessary, Desirable, and Possible?’ (2014) 36 Sydney Law Review 131. Not all Australian commentators are anti-codification: for a positive view, see for instance D Svantesson, ‘Codifying Australia’s Contract Law—Time for a Stocktake in the Common Law Factory’ (2008) 20 Bond Law Review 1. 75 Some Australian states have Crimes Acts, which list varieties of criminal acts without exhaustively treating of their content. At the federal level, the Crimes Act 1914 and the Criminal Code Act 1995 represent a concerted movement in the direction of codification.

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of Obligations76 (adopted in 2002)77, a law constituting one of the five connected parts of its Civil Code, were modelled largely on the rules found in the PECL, and the Belgian Pledge Act of 11 July 2013 is heavily influenced by the DCFR Book IX.78 To what extent a CCC might want to produce a draft instrument which, in modelling itself more on the content of the PECL and DCFR, would further ‘civilianise’ Scots private law is an interesting question. It is one which would raise a number of considerations, among them the proposed timescale for completing the project: greater adoption of PICC, PECL or DCFR rules would greatly increase the need for consultation and the burden of the preparatory work of the CCC.

X. Conclusions By way of conclusions, let me make a few remarks under three headings relating to the kind of codification I have been considering: desirability; practicability; and attainability. In terms of desirability, I have argued that codification within the Civilian tradition is, on the whole, a desirable thing for the small, mixed legal system of Scotland. A number of benefits would accrue, among them clarification of currently confused areas of the law; the filling in of gaps in our existing jurisprudence; and reversal of the current trend to overregulation and legislation. Ultimately, the most convincing argument for codification in all currently un-codified legal systems, including Scotland, is a legal-political one: codification would bring the law closer to the public, making it more accessible and encouraging a greater sense of individual participation in the legal order. So, the heart of my argument rests on a justification which is not merely a legal but also a politico-governmental one. In terms of practicability, I have argued that the task of codification of the civil law could be achieved in the medium term, assuming the necessary support from both the legal and political spheres. Completion of the project would come with a reasonably substantial price tag, but the positive results would have an enduring economic value. There would be policy and drafting challenges, but no more so than in other systems which have codified their law, and the drafting Commission could draw on the comparative codification experience of other legal systems. The adjustment of legal culture which would require to follow the style of drafting I have proposed, and the shift to a system of jurisprudence constante, would present the greatest challenges, but it should not be forgotten that we already live with a history of quite dramatic changes in legislative drafting style, and that we did not have a system of stare decisis before the emergence of accessible, printed law reports. Finally, in terms of attainability, it must be admitted that there is an absence of any interest in a codification project in the present Scottish Government, that views in the legal community are mixed, and that it is not a subject which puts fire into the bellies of the public. But at a time of growing nationalism in Scotland, it is not inconceivable that the current

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Available at www.riigiteataja.ee/en/eli/506112013011/consolide. And since somewhat revised to take account of subsequent EU Directives. 78 I am grateful to Dr Andrew Steven of the Scottish Law Commission for drawing this example to my attention. The new Belgian Act is discussed in E Dirix, ‘The New Belgian Act on Security Interests in Movable Property’ (2014) International Insolvency Review 171. 77

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party of government in Scotland might come to see in the project a means to celebrate and bolster national identity and legal culture. If Scottish independence were to be achieved in any future independence referendum, I suspect there would be a greater likelihood of codification of both the civil and criminal law. That is not to say that it is a project which unionists cannot also get behind: support or opposition for codification does not follow political lines. Of course, national codification of private law is not the only way to improve a legal system. As discussed in this chapter, alternatives include greater European harmonisation or codification, national restatement, consolidation of existing statutory law, continued use of maxi-statutes, and step-by-step legislative development of areas of law which could, over time, develop into a sort of ‘code’. The realist (perhaps pessimist?) in me suspects that conservative inertia and more pressing governmental priorities will result only in the continuing use of maxi-statutes; that, at best, step-by-step codification (in a traditional British sense) will continue to be the means of on-going reform of Scots law; and that the likelihood of a more sweeping codification of private law will remain (in the short term) slim.79 Yet the dreamer in me wants to believe that something more is possible, and that a codification of private law which offers easy public access to concisely expressed, comprehensive legislative provisions, resting on a Scottish preference for clear legal principle and structures, ought to be the aspiration of our legal system.

79 A view shared by others: see, eg, that of a current Scottish Law Commissioner, Professor HL MacQueen: ‘Reforming Third Party Rights in Scotland’ (to be published in a forthcoming Festschrift for Joachim Bonnell), who comments on the ‘the absence of any realistic prospect of a Scottish civil code, or even a contract code’. Professor MacQueen adds that Scottish law reformers ‘look only with envy’ at the systematic overviews of the law achievable in model Codes such as the PICC and DCFR, and the work being done on a new code of obligations in France.

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7 Power Failure? The Distracting Effect of Legislation on Common Law Torts WENDY BONYTHON

I. Introduction The argument over the comparative superiority of statute to case law which has preoccupied practitioners and scholars throughout history has recently diminished in relevance: many scholars and judges have argued instead that the two are interdependent and symbiotic. As Justice Windeyer said, ‘it is misleading to speak glibly of the common law in order to compare and contrast it with a statute’.1 An array of other judges and commentators have subsequently discussed the limitations of the debate over the relative superiority of common law and statute, while speculating on the future of the common law.2 Justice Leeming, writing extracurially in 2013, noted the artificiality of referring to the ‘common law’: What is commonly thought of as ‘common law’, namely, the various bodies of judge-made law, including equity and admiralty, taught in law schools and written about in law books is and always has for the most part been sourced in statute and is unintelligible without reference to statute.3

In noting that there has always been significant interaction between common law and statute, it becomes clear that, in Leeming’s view, the debate is little more than a legal fiction, perhaps unlikely to serve any real purpose in practice.4

1

Gammage v The Queen [1969] HCA 68, (1969) 122 CLR 444, 462 (Windeyer J). McHugh, ‘The Growth of Legislation and Litigation’ (1995) 69 Australian Law Journal 37; L Scarman, ‘Ninth Wilfred Fullagar Memorial Lecture: The Common Law Judge and the Twentieth Century—Happy Marriage or Irretrievable Breakdown?’ (1980) 7 Monash University Law Review 1; J Beatson, ‘Has the Common Law a Future?’ (1997) 56 CLJ 291; ‘The Role of Statute in the Development of Common Law Doctrine’ (2001) 117 LQR 247, 259; S McLeish, ‘Challenges to the Survival of the Common Law’ (2014) 38(2) Melbourne University Law Review 818. 3 M Leeming, ‘Theories and Principles Underlying the Development of the Common Law: The Statutory Elephant in the Room’ (2013) 36 University of New South Wales Law Journal 1002, 1004. 4 M Kirby, ‘Statutory Interpretation: the Meaning of Meaning’ (2011) 35 Melbourne University Law Review 113; P Atiyah, ‘Common Law and Statute Law’ (1985) 48 MLR 1; L Moses and B Edgeworth, ‘Taking it Personally: Ebb and Flow in the Torrens System’s In Personam Exception to Indefeasibility’ (2013) 35 Sydney Law Review 107. 2 M

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Others are more partisan: critical reference to ‘the Age of Statutes’ is frequent in the writings of judges and scholars alike.5 If, as some jurists suggest, the world has moved on from debate over the relative superiority of legislation or common law, instead recognising that law is a hybrid of the two, broader questions remain about their interaction in practice. It is the relationship between statute and common law in torts—an issue identifiably underdeveloped by scholars in the broader context of private law—that is the focus of this chapter.6

A. Torts: A Hybrid System Tort law in Australia relies on both statute and common law as sources of legal principle. Although traditionally viewed as a ‘common law’ sub-discipline—as distinct from those areas largely created by statute—the reality is that torts has been heavily influenced by legislation since at least the 1800s. Lord Campbell’s Act,7 for example, reformed the law to grant recognition of wrongful death claims that would otherwise have been excluded from the scope of common law torts. Other examples of tort law that are heavily reliant on legislation include workers’ compensation, motor vehicle accidents, and occupiers’ liability matters. Passage of the Civil Liability Acts8 (CLAs) in all Australian states and territories in the early 2000s, variously restating or reforming the legal principles underpinning the general law of negligence,9 ended the fiction that tort law was anything other than a hybrid statutecommon law area of practice.10 The CLAs are relatively comprehensive, identifying issues such as the standard of care, breach of the duty of care, and causation.11 They also address several defences, including contributory negligence and inherently risky activities, and specific principles of law arising in particular circumstances, such as joint liability, or liability for mental harm.

5 P Finn, ‘Statutes and the Common Law’ (1992) 22 University of Western Australia Law Review 7, 10; B McDonald, ‘Legislative Intervention in the Law of Negligence: The Common Law, Statutory Interpretation and Tort Reform in Australia’ (2005) 27 Sydney Law Review 443. 6 See, eg, E Bant, ‘Statute and Common Law: Interaction and Influence in Light of the Principle of Coherence’ (2015) 38 University of New South Wales Law Journal 367; A Burrows, ‘The Relationship Between Common Law and Statute in the Law of Obligations’ (2012) 128 LQR 232. 7 Fatal Accidents Act 1846 (9 & 10 Vict c 93). 8 Civil Liability Acts are, collectively: Civil Law (Wrongs) Act 2002 (ACT); Civil Liability Act 2002 (NSW); Personal Injuries (Civil Claims) Act 2003 (NT) and Personal Injuries (Liabilities and Damages) Act 2003 (NT); Personal Injuries Proceedings Act 2002 (Qld) and Civil Liability Act 2003 (Qld); Civil Liability Act 1936 (SA); Civil Liability Act 2002 (Tas); Wrongs Act 1958 (Vic); and Civil Liability Act 2002 (WA). 9 Noting that some Acts also have provisions addressing other torts, eg the Civil Law (Wrongs) Act 2002 (ACT) also contains provisions on defamation and trespass to land—in neither case does this constitute as comprehensive a summary of the legal principles as the sections on negligence. 10 Significantly, many torts textbooks still focus on the common law principles, providing supplementary information about statutory provisions in footnotes and tables, rather than as the primary source of law throughout the text. Unsurprisingly, many students fail to appreciate the importance of legislation when the material is presented in this way. 11 Notably, in NSW and the ACT, the provisions of the legislation titled ‘Duty of Care’ deal with no such thing, instead addressing the test for breach of duty, and requiring consideration of the case law to establish whether a duty is owed as a preliminary necessary step.

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Importantly, the principles are sufficiently general to apply to a broad range of factual circumstances. The CLAs are an example of principle-directed legislation, providing legal principles applicable to a wide range of factual circumstances. Principle-directed legislation can be considered as analogous to ‘questions of law’ in causation, rather than ‘questions of fact’, an analogy which usefully contrasts principle-directed legislation from the abundance of ‘question of fact’, issue-focused legislation that may also be considered in torts litigation. Typically, such legislation undertakes regulation of specific activities, and is intended to be restricted in its application to matters involving those activities, rather than establishing general legal principles which can be extrapolated to govern other, unrelated activities. The focus of these Acts is a particular fact, characteristic, attribute or activity forming part of the fact matrix of a given case. They are examples of legislative particularism, exceptionalism, or specialism. Their increasing prominence in cases that prima facie appear to be ‘common law’ torts claims is the focus of this chapter.

B. Uncomfortable Bedfellows, or Business as Usual? Some aspects of the relationship between legislation and common law are so well- established they scarcely require a mention. It is clear, for example, that since the English Bill of Rights of 1688 established the doctrine of parliamentary supremacy, courts are unable to overturn constitutionally valid legislation.12 In Australia, the doctrine of the separation of powers in the Constitution establishes, in lieu of the doctrine of parliamentary sovereignty, that the national parliament’s role is to pass legislation, with the courts interpreting that legislation. The High Court can invalidate legislative provisions, but only to the extent of inconsistency with the Constitution.13 Parliament is at liberty to pass legislation reforming, abrogating, or confirming common law developments, if it wishes. Courts are bound to apply legislation as it exists, in accordance with precedents set by equivalent or superior courts interpreting that legislation, even if the judge in question views the legislation or its interpretation as wrong, or outdated. Other aspects of the relationship between legislation and common law in the courts are, however, less well defined. In a 2015 article, Professor Bant identified the bi-directional relationship between the common law and statute, commenting: The role of common law concepts in informing statutory interpretation and application is wellknown, although it remains a continuing source of tension in Australian private law. Significantly less well recognised, however, is that statutory principles potentially constitute a potent source of analogical reasoning when determining the application and development of common law principles.14

12 13 14

A Dicey, The Law of the Constitution: Vol 1 ed, J Allison (Oxford, Oxford University Press, 2013) 27. Commonwealth of Australia Constitution Act (63 & 64 Vic c 12) s 109. Bant (n 6) 368.

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In discussing analogy from legislation, Bant echoed other writers, including Professor McDonald. In 2005,15 discussing the recently passed CLAs, McDonald referred to various possible ‘uses’ of legislation identified by Atiyah, who stated: Construction, as a matter of theory at least, requires the court to give effect to what it thinks the legislation actually enacts. Using statutes by way of analogy quite clearly involves using them to produce results which the legislation does not enact.16

A contention of this chapter is that Australian courts are now using statutes in no fewer than six separate ways, some of which result in usage of legislation in ways the parliaments did not expressly enact, but also potentially in ways the parliaments neither foresaw, nor intended. These uses are summarised in diagrammatic form in Figure 1, below. According to Atiyah, summarising Roscoe Pound’s 1908 criticism of US jurisprudence’s failure to engage meaningfully with legislation,17 the ways in which legislation is used could be divided as between construction and analogy—neither of which terms was defined by Pound or Atiyah, but which were nonetheless adopted by the latter as the basis for his work. Construction could be further subdivided into ‘liberal’ (Use 1) or ‘strict’ (Use 2) construction.18 Analogy could either see legislation trumping common law— being attributed a greater legitimacy than common law, and therefore carrying compelling weight in the common law’s development (Use 3)—or common law and legislation could be treated equivalently (Use 4). Branching off further from the ‘analogy’ limb of Pound’s model, McDonald proposed a fifth method of use (Use 5), considering that the courts could refuse to draw an analogy from legislation if they felt it insufficiently reflected ‘compelling legal policy’. Bant further refined criteria for inclusion under this fifth use limb, stating: Where the statutory language adopts broad normative standards, illustrates its operation by inclusive rather than exhaustive criteria, or assumes or adopts a common law doctrine as its criterion for operation, there is significant room for cognate common law doctrines both to inform and be informed by the developing statute jurisprudence.19

C. A New Use? To this framework of ‘uses’ of statute, I would add a sixth, the focus of this chapter. It is the construction counterpart to McDonald’s addition. My suggestion is hence that courts could refuse to adopt a construction of the legislation (Use 6), particularly where to do so would result in consequences for the common law exceeding what was foreshadowed by the legislature. Differing from McDonald in my justification for this refusal, I return to Bant’s work and adopt her criterion of coherence as the test for the sixth limb. A court should hence not ‘over-infer’ that legislation on a particular topic is intended to ‘cover the field’, and abolish or reform existing principles of common law, absent an express, or at least strongly inferred, parliamentary intention to do so.

15

McDonald (n 5). Atiyah (n 4) 1. 17 R Pound, ‘Common Law and Legislation’ (1908) 21 Harvard Law Review 383, 385. 18 ibid 390, 396. 19 Bant (n 6) 371. 16

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Figure 1: Model of the uses of legislation (adapted from Atiyah, Pound, MacDonald and Bant)

D. Coherence If the redundancy of the common-law-versus-statute debate has occupied judges in their extracurial activities, the issue of legal coherence has been preoccupying Australia’s High Court to a similar extent. The concept of coherence in tort law is well established in the High Court’s reasoning.20 Prior to Sullivan v Moody,21 however, if that Court mentioned coherence in a tort case, it did so in relation to the desirability of maintaining internal coherence within the common law of tort. It was not until the Court was asked to consider whether a child protection authority owed a duty of care to the parents of the children in whose best interests they were statutorily obliged to act that it began expressing the desirability of coherence between statute and case law, ultimately finding that recognition of a duty of care at common law would be inconsistent with the legislation, and rejecting it for the sake of maintaining coherence between them.22 In Miller v Miller,23 the High Court again considered the principle of coherence between statute and common law, this time in the context of reconciling statutory prohibitions

20 See, eg, Hill v Van Erp [1997] HCA 9, (1997) 188 CLR 159; Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) [1997] HCA 8, (1997) 188 CLR 241. 21 Sullivan v Moody [2001] HCA 59, (2001) 207 CLR 562. 22 ibid. 23 Miller v Miller [2011] HCA 9, (2011) 242 CLR 446.

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of certain conduct with a claimed common law duty of care between parties previously engaged in a joint illegal enterprise from which the plaintiff subsequently withdrew. In Miller, the Court was invited to consider both analogy with the common law of c ontract on illegality and the law of trusts, and construction of the provisions of the r elevant legislation, namely the Criminal Code (WA). The majority, on the issue of coherence and legislative construction, emphasised the importance of ‘the relevant statute and its purposes’ in determining whether ‘incongruity, contrariety or lack of coherence’ would arise as a consequence of recognising a common law duty of care.24 The majority also noted decisions on coherence were likely to be jurisdiction-specific, as specifically reflecting the relevant statute and its purpose, rather than broader considerations of ‘public policy’.25 But what is the objective of striving for ‘coherence’? One of the principal reasons for seeking coherence is to provide predictability and freedom from arbitrariness, through the mechanism of the doctrine of stare decisis, the rationale for which was itself described by Australia’s Federal Court as ‘certainty, equality, efficiency and the appearance of justice’.26

E. Construction Statutory construction has recently been the subject of increased attention. Judges have frequently lamented its under-appreciation as the workhorse skill of the judiciary, and encouraged teaching of it as a fundamental skill by law schools. That teaching is the subject of a recent review for the Council of Australian Law Deans.27 However, an emerging trend in Australian case law, exemplified by three cases discussed in subsequent parts of this chapter, suggests that at least some members of the judiciary feel compelled to construe any legislation presented to them by parties to accommodate the facts before them, regardless of how tenuously it applies to the particular matter before the court. A critical preliminary step—considering whether parliament intended that the legislation would apply to disputes of the type under consideration—is particularly important when the legislation deals with specific factual issues, rather than legal principle. Discovering the legislature’s intention in passing legislation is a well-established part of statutory interpretation. Ideally, legislatures would always express their intentions regarding the scope of all legislative operations in clear, concise statements in the objectives at the beginning of each Act. In the absence of clearly expressed statements outlining the scope of the legislation’s objectives, courts are instead left to ‘infer’ that scope, divining legislative intention using extrinsic aids including explanatory memoranda or, failing that, indications of intention from speeches made during reading of the relevant Bill before parliament. Such indications can be implicit: Gaudron J, in Crimmins v Stevedoring Industry Finance Committee,28 found that ‘as a matter of implication, the legislation reveals an intention to

24

ibid [74]. ibid [56]. 26 Telstra Corporation Ltd v Treloar [2000] FCA 1170 [23] (Branson and Finkelstein JJ). 27 Council of Australian Law Deans, ‘Good Practice Guide to Teaching Statutory Interpretation’ (June 2015). 28 Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59, (1999) 200 CLR 1. 25

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exclude the common law in relation to the exercise or non-exercise of that power’29 in the absence of an expressed intention. In Gifford v Strang Patrick Stevedoring,30 McHugh J criticised the presumption that legislation is not intended to alter common law rights, absent an expressed intention, stating that the absence of an express intention could only be of significance ‘when all other factors are evenly balanced’.31 McHugh J’s reasoning leaves it open to the Court to infer intention to ‘interfere’ with common law rights if such an inference is a necessary implication of the wording of provisions of the statute. It would, therefore, be wrong for courts to interpret subject-matter-specific legislation directed at a particular activity as ‘covering the field’, to the exclusion of any pre-existing common law rights, in the absence of evidence to support that interpretation of the legislature’s intent. In short: mere existence of legislation in relation to a particular activity should not mean that it will be interpreted as covering all possible scenarios arising out of that activity. The next sections of this chapter examine in detail three cases where exceptionalist legislation has been construed to modify, or abrogate existing common law rights and obligations. In each case, the construction relies on tenuous application of the rules of legislative interpretation, or a mischaracterisation of the precedent underpinning those rules, leading to expansion of the legislative scope in ways not entirely consistent with the evidenced intention of the legislature. In each case, the result diminishes the coherence of the law. A more coherent result would have arisen, had the court simply declined to construe the legislation in the way it was invited to.

II. No Duty to Care: McKenna in the High Court In 1928, Lord Atkin stated the basis for determining whether a duty of care was owed between parties in negligence cases in terms of his now famous ‘neighbour principle’.32 Courts and legislatures have subsequently struggled to formulate an acceptable framework for determination of duty situations. While the neighbour principle—resting on the concept of reasonable foreseeability of the plaintiff being harmed by the defendant’s act—has generally been held to be too broad, requiring something else to limit the scope of duty situations, articulating what that ‘something else’ is has proven problematic. Courts have flirted with approaches such as the ‘two-stage’ test,33 and proximity34—the latter concept being difficult to define and demonstrate by analogy. The former was rejected by the High Court of Australia in Sutherland Shire Council v Heyman.35 The concept of proximity was

29

ibid [26]–[27] (Gaudron J). Gifford v Strang Patrick Stevedoring Pty Ltd [2003] HCA 33, (2003) 214 CLR 269. 31 ibid [36] (McHugh J). 32 Donoghue v Stevenson [1932] AC 562 (HL). 33 Anns v Merton London Borough Council (1978) AC 728 (HL). 34 See, eg, Jaensch v Coffey [1984] HCA 52, (1984) 155 CLR 549 (Deane J). 35 Council of the Shire of Sutherland v Heyman [1985] HCA 41, (1985) 157 CLR 424. See also K Mason, ‘The Intent of Legislators: How Judges Discern it and What They Do If They Find It’ (2006) 27 Australian Bar Review 253. 30

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rejected as ‘an explanation of a process of reasoning leading to a conclusion’ in establishing the existence of a duty of care in Sullivan,36 although it remains of conceptual relevance in some areas of negligence law, such as claims for pure economic loss,37 and pure mental harm, where those claims are not governed by CLA reforms expressly or by inference excluding it.38 Currently, the ‘something else’ is most frequently captured by the elastic term ‘policy considerations’.39 Courts have refused to recognise the existence of a duty of care arising between parties—stopping any potential negligence claim dead in its tracks—for ‘policy’ considerations, which include factors as diverse as resourcing allocations,40 indeterminate liability flowing from mass media communication,41 and illegality.42 Typically, recognition of a duty in more complex types of case requires the plaintiff to be foreseeably identifiable either personally, or at least as a member of a class, as one who may potentially be harmed by the act or omission in some way that differs from the risk of harm posed to the community in general. This lack of specificity in potential plaintiff foreseeability underpins, for example, the decisions in Hill and Alcock: the courts felt that the population of specific plaintiffs was simply too broad—or indeterminate—for the particular plaintiff to whom a duty was claimed to be foreseeable. A particularly complex subclass of ‘policy considerations’ arises in the context of negligence claims directed against public authorities. Distinct from claims for breach of statutory duty, these cases typically occur in the context of allegations that a public authority has been negligent in failing to exercise a power conferred by statute, to the plaintiff ’s detriment.

A. Statute and Duties of Care: The Rules of Engagement The High Court has considered several claims of this type since the mid-1990s,43 developing principles for determining whether a duty of care exists between the defendant, and the plaintiff in question. All are potentially applicable to public authority defendants, as distinct from any broader—and judicially unacknowledged—duties those authorities may owe to the community as a whole, or to large subsectors of the community. In Sullivan,44 difficulties associated with identifying the existence of a duty of care were summarised thus: Sometimes the problems may be bound up with the harm suffered by the plaintiff, as, for example, where its direct cause is the criminal conduct of some third party. Sometimes they may arise because 36

Sullivan (n 21), 48. For further discussion of the changing fortune of tests for duty of care, see, eg, P Vines, ‘The Needle in the Haystack: Principle in the Duty of Care in Negligence’ (2000) 23 University of New South Wales Law Journal 35; J Keeler, ‘The Proximity of Past and Future: Australian and British Approaches to Analysing the Duty of Care’ (1989) 12 Adelaide Law Review 93. 38 See, eg, Civil Liability Act 2002 (NSW) s 30. 39 C Witting, ‘Tort Law, Policy and the High Court of Australia’ (2007) 31 Melbourne University Law Review 569. 40 Hill v Chief Constable of West Yorkshire [1989] AC 53 (HL). 41 Alcock v Chief Constable of South Yorkshire Police [1992] 1 AC 310 (HL). 42 Gala v Preston [1991] HCA 18, (1991) 172 CLR 243. 43 Crimmins (n 29); Sullivan (n 21); Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54, (2002) 211 CLR 540. 44 Sullivan (n 21). 37

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the defendant is the repository of a statutory power or discretion. Sometimes they may reflect the difficulty of confining the class of persons to whom a duty may be owed within reasonable limits. Sometimes they may concern the need to preserve the coherence of other legal principles, or of a statutory scheme which governs certain conduct or relationships. The relevant problem will then become the focus of attention in a judicial evaluation of the factors which tend for or against a conclusion, to be arrived at as a matter of principle.45

The facts of McKenna potentially gave rise to all four categories of identified ‘problems’; the one that particularly captured the attention of the High Court in its judgment was coherence.

B. The Facts of McKenna The plaintiffs in McKenna were the mother and sisters of a man (Rose) who had been killed by his mentally ill friend (Pettigrove). In July 2004, Pettigrove was hospitalised under involuntary treatment powers contained in the Mental Health Act 1990 (NSW).46 Pettigrove had a history of chronic paranoid schizophrenia, previously treated with regular depot injections, which he had ceased at the time of his hospitalisation.47 During a meeting to discuss Pettigrove’ s treatment the day after his admission, the consulting psychiatrist decided to discharge him the following day into the company of Rose, to travel some 1100 km by private vehicle to his mother’s home to receive further treatment in a more supportive setting, in accordance with her wishes. No decision to provide Pettigrove with medication was made, nor was there any evidence that re-initiating his depot medication was considered by the psychiatrist at that meeting. Locations en route where psychiatric support services could be obtained, if required, were discussed, as was the possibility of Pettigrove undertaking some of the driving. Pettigrove’s willingness to continue to receive treatment does not seem to have been assessed at the interview. Significantly, Pettigrove had significant physical disabilities that impaired his sight and hearing, and his participation in discussions at which the psychiatrist was present appears limited, at least in part due to the failure of the hospital to detect that his hearing aid batteries were flat. The following day, Pettigrove was provided with a single dosage of medication, and discharged, whereupon Rose and Pettigrove began their road trip. Later that night Pettigrove strangled and killed Rose during a rest stop. Pettigrove subsequently committed suicide, prior to commencement of litigation. The plaintiffs claimed to have suffered psychological harm as a consequence of the death of their son and brother, resulting from the negligence of the health authority and/or the psychiatrist, for whom it was vicariously liable, in discharging Pettigrove into Rose’s care.

45

ibid 579–80 [50] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ). Mental Health Act 1990 (NSW). 47 Simon & Anor v Hunter & New England Local Health District; McKenna v Hunter & New England Local Health District [2012] NSWDC 19. 46

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In the District Court,48 the plaintiffs argued unsuccessfully that in releasing Pettigrove the psychiatrist did not exercise reasonable professional care and skill, and that ‘a reasonable person in [the psychiatrist’s] position would have concluded there was a not insignificant risk of Mr Pettigrove behaving as he did’.49 Elkaim DCJ also found that the psychiatrist had acted ‘in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice’.50 As the doctor did not breach the duty, he was not liable. In a successful appeal against the District Court’s decision,51 the majority (Beazley P and Macfarlan JA, Garling J dissenting) found that Rose was owed a duty of care which was breached. President Beazley held that the relevant duty was ‘not to release [Pettigrove], who was a mentally ill person, into Mr Rose’s care, or at least his sole care, for the purposes of conveying him to Victoria where it was intended or, at least, expected that he would undergo further psychiatric treatment’.52 Justice Macfarlan held that ‘The Hospital owed Mr Rose a common law duty to take reasonable care to prevent Mr Pettigrove causing physical harm to Mr Rose’; that the psychiatrist was negligent ‘in discharging Mr Pettigrove’ when he did; that the Health Authority was ‘not entitled to the protection of s 5O’ of the CLA; and that the negligence was a cause of the plaintiff ’s harm. On appeal to the High Court, the Health Authority argued that the Court of Appeal was wrong to hold that it, or the psychiatrist, owed a duty of care to Rose and his relatives. At the heart of the High Court’s consideration were the powers granted, and the obligations imposed by the New South Wales Mental Health Act 1990. Ultimately, the Court rejected the plaintiff ’s claim, finding that, under s 20 of the legislation, the power to detain and treat patients involuntarily only existed if the medical superintendent is of the opinion that no ‘other care of a less restrictive kind is appropriate and reasonably available to the person’ (emphasis added).53 The decision was problematic on a number of grounds, including because the relevant legislation makes it quite clear that involuntary detention powers are to be exercised as an option of last resort, when there are no less restrictive options reasonably available.54 From the judgments, however, there is no evidence that anybody actually attempted to ascertain Pettigrove’s views on his treatment or hospitalisation. Some evidence suggested he might have consented to hospitalisation as a voluntary patient at least until his condition stabilised. Additionally, nothing in the judgments indicated that Pettigrove lacked the capacity to consent to treatment. On that basis, therefore, the legislative power in question arguably was unavailable, as the critical condition for its activation—the involuntariness

48 ibid. 49

ibid 88. ibid 93. 51 McKenna v Hunter and New England Local Health District [2013] NSWCA 476, (2013) Aust Torts Reports 82–158. 52 ibid 2 (Beazley J). 53 Hunter and New England Local Health District v McKenna; Hunter and New England Local Health District v Simon [2014] HCA 44 [26]. 54 Mental Health Act 1990 (NSW) s 20. 50

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of the patient—was never tested, let alone satisfied. Notwithstanding that, the High Court proceeded on the basis that the legislative powers were available.

C. The McKenna Coherence Paradox The High Court stated that all four problems identified in Sullivan applied in McKenna. It essentially disregarded the first three, instead focusing on the fourth, that of coherence. In finding against the plaintiffs, the High Court relied principally on the fourth criterion identified in Sullivan – coherence—identifying an inconsistency between the Act’s emphasis on minimal interference with the plaintiff ’s liberty, and imposition of a common law duty such as that argued by the plaintiffs, which could demand greater interference with the patient’s liberty in responding to foreseeable risk: In some cases, perhaps many, the reasonable person in the position of the hospital or doctor would respond to those risks by continuing to detain the patient for so long as he or she remains a mentally ill person, thus avoiding the possibility that the risk of harm to others will eventuate. But that is not what the Mental Health Act required. It required the minimum interference with the liberty of a mentally ill person. It required that the person be released from detention unless the medical superintendent of the hospital formed the opinion that no other care of a less restrictive kind was appropriate and reasonably available to that person.55

In its attempt to avoid creating incoherence in the law resulting from its interpretation of the legislation, the High Court inadvertently created a more significant inconsistency. The High Court’s interpretation of the legislation overlooks a critical difference between the Mental Health Act, and the relevant legislation in Sullivan – specifically, that the legislation in Sullivan dealt with an activity that could only be carried out by the state exercising its legislated powers. In contrast, the legislation in McKenna only governs the issue of consent to the provision of psychiatric treatment, not the provision of treatment itself, which is not reliant on the legislation. There are, therefore, two separate duties in question: a common law duty concerning the provision of treatment, which is independent of the legislated duty to obtain consent. In failing to make that distinction, the Court conflated issues of consent and treatment into a single, legislated duty. Referencing the observations of Gaudron J in Crimmins, and McHugh J in Strang, discussed above, it is contestable that the inferred exclusion of common law duties is necessary to give effect to the Act’s objectives and purposes. Indeed, reading the Act as a whole— including its objectives and definitions—makes it quite clear that operation of the relevant sections in McKenna is specifically restricted to involuntary admission to hospital, rather than including voluntary admission to hospital of people with mental illness or disorder. The legislation does not expressly exclude a common law duty arising from treatment, for involuntary or voluntary patients; any such exclusion must therefore be a ‘necessary implication in order to give effect to the legislation’.56 In McKenna, the implication was not necessary in order for the legislation to be effective, based as it was on an erroneous conflation of two separate issues.

55 56

Hunter (n 55) [31]. Crimmins (n 29) (Gaudron J).

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D. Right Outcome, Wrong Reasons? The Aftermath of McKenna The argument preceding does not necessarily dispute the outcome of McKenna. It does, however, suggest that the reasoning underpinning that outcome is unsafe, and that the reasoning creates incoherence in the law, resulting in a double standard whereby psychiatrists treating voluntary patients are potentially liable in negligence for providing inadequate treatment, while other patients who do not—or cannot, if they lack capacity—consent to treatment are denied the protection offered by the common law of negligence. In carving out a de facto immunity for psychiatrists who provide substandard treatment that would otherwise be considered negligent, people with mental illness receiving treatment can rely on the common law of medical negligence, unless their circumstances were such that, at some point proximate to their receipt of treatment, there was a consideration as to whether treatment should be provided involuntarily. The outcomes of that consideration are not determinative of whether the common law principles should be suspended; mere consideration of the potential applicability of the criteria for involuntariness is sufficient. In the absence of a comprehensive national Bill of Rights, the common law has traditionally provided Australian citizens with some—albeit limited—relief from unjustifiable rights violations.57 The effect of this decision is to further erode the options available to some of the most vulnerable members of the community to access treatment of an appropriate standard, and to hold accountable those who fail to provide it, in a way that is inconsistent with expectations about human rights, equality before the law, and societal standards. A better approach would have been to disregard the legislative provisions on the basis that they did not apply, as involuntariness had not been established, and instead proceed to resolution of the claim on the general principles of law governing medical negligence. The plaintiffs’ claim might still have faltered on the issue of breach and/or causation, but it would have done so without reliance on a problematic interpretation of legislation and its relationship to the existing common law.

III. Weeds, Seeds and Dirty Deeds: Statutory Regulation of GMO and Organic Farming, and Implications for Third Parties: Marsh v Baxter Prima facie, the facts of Marsh v Baxter58 are reminiscent of common law principles in both negligence and nuisance established in cases such as Sparke v Osborne,59 Goldman v Hargraves,60 Rylands v Fletcher,61 and Perre v Apand.62 57 Compared with cases emerging in other jurisdictions, where judicial consideration of torts claims feature consideration of broad based human rights laws, such as the Human Rights Act 1998 (UK), eg Rabone and another v Pennine Care NHS Foundation Trust [2012] 2 AC 72; P v Cheshire West & Chester Council; P & Q v Surrey County Council [2014] UKSC 19. 58 Marsh v Baxter [2014] WASC 187, [2015] WASCA 169. 59 Sparke v Osborne [1908] HCA 46, (1908) 7 CLR 51. 60 Goldman v Hargrave [1966] UKPCHCA 2, (1966) 115 CLR 458. 61 Rylands v Fletcher [1868] UKHL 1, (1868) LR 3 HL 330 62 Perre v Apand Pty Ltd [1999] HCA 36, (1999) 198 CLR 180.

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The plaintiffs and the defendant were farmers with adjoining properties. The plaintiffs were ‘organic’ cereal crop producers, but did not grow canola. The defendant grew canola conventionally ie, not organically. The plaintiffs alerted the defendant to the discovery of canola growing on the plaintiff ’s property as a consequence of seed dispersal from the defendant’s property on several occasions, warning of serious consequences for their business’s organic accreditation under some circumstances of contamination. The defendant subsequently began growing genetically modified canola crops, and harvested the genetically modified canola by swathing, a process where cutting of the seed heads from the plant stalks, and collection of those heads, is separated by a period of weeks, to enable the seed heads to dry out. During that period, seed heads are not anchored to the ground, and wind can lead to dispersal of seed, with subsequent germination of canola plants. Genetically modified canola was found on the plaintiff ’s property, and they were prevented from selling their produce in their intended organic market as a consequence of the contamination. The plaintiffs sued in negligence and nuisance occasioning pure economic loss.

A. Naturally Blowin’ in the Wind? The key Australian cases dealing with this type of claim date back to the last century. In Sparke,63 the plaintiff brought a suit in equity over invasion of his property by uncontrolled prickly pear, a weed, from the defendant’s property. The weed had damaged the boundary fence, so that native dogs were able to enter the plaintiff ’s property and kill large numbers of his sheep. The High Court focused on two critical issues in distinguishing Sparke from the earlier case of Crowhurst v Amersham Burial Board.64 In that case, the defendants had intentionally planted a yew tree, known to them to be toxic, in a location where the plaintiff ’s horses could eat by its overhanging branches and be poisoned. In distinguishing Crowhurst, the Court in Sparke noted that the tree was attributable to the defendant’s action in planting it, rather than the defendant’s omission to remove it. Additionally, yew was recognised as dangerous to livestock, thereby falling foul of the rule in Rylands v Fletcher, which imposes strict liability on a person who ‘for his own purposes brings upon his land and collects and keeps there anything which is likely to do mischief if it escapes’.65 In Sparke, the Court preferred Giles v Walker,66 which dealt with wild thistles escaping to another property and causing damage. In his lead judgment, with which the other judges concurred, Griffith CJ stated: I can find no trace in the law of any doctrine that would authorise the Court to say that the owner of land afflicted by nature with a curse of this sort is under any liability to his neighbour because he is unable to keep it down.67

Sparke, therefore, suggests three possible scenarios existed under common law: no liability arising from an occupier’s omission to respond to a phenomenon of nature (Sparke); 63

Sparke (n 59). Crowhurst v Amersham Burial Board (1878) 4 Ex D 5. 65 Fletcher v Rylands (1866) LR 1 Ex 279–80. 66 Giles v Walker (1890) 24 QBD 656. 67 Sparke (n 59) 59–60 (Griffith CJ). 64

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strict liability for damage caused by escape of a ‘dangerous’ thing brought onto land by the defendant for the defendant’s purposes (Rylands); and, potentially, a lesser liability for escape of things which are not dangerous but which are brought onto land by the defendant for the defendant’s purposes. Goldman further refined this position almost 50 years later. It concerned a defendant who ‘adopted’ a naturally occurring source of harm, in the form of a burning tree that he failed to extinguish. The Privy Council, on appeal from the High Court, in finding the defendant owed the plaintiff a duty of care with respect to extinguishing the tree, limited the circumstances under which a duty would exist, requiring that it ‘be based upon knowledge of the hazard, ability to foresee the consequences of not checking or removing it, and the ability to abate it’.68 The Council went further, referring to a Queen’s Bench decision overturning Giles v Walker, and indicated that both Sparke and Giles would likely have been decided by reference to the defendant occupier’s ability to respond to the harm’s source, rather than by a prima facie finding of no duty to respond to naturally occurring phenomena posing a risk of harm or nuisance to others. Case law, therefore, indicates that a farmer who purposely plants a ‘non-dangerous’ crop that escapes and causes harm can potentially be personally liable at common law in nuisance for the escape, and also in negligence for failing to act reasonably in preventing the escape.

B. Special Vulnerability? Such a duty of care can arguably be limited by virtue of the nature of the harm suffered by the plaintiff. In Perre69 the plaintiffs’ harm was purely economic. The defendant sold seed potatoes to a third party farmer, Sparnon, located near the plaintiffs’ potato farming enterprise. The plaintiffs typically sold most of their crop to the Western Australian market. That market was regulated by strict quarantine laws, including a prohibition on potatoes grown within a certain distance of an outbreak of bacterial wilt. The seed potatoes bought from the defendant by Sparnon were grown within the proscribed distance of the plaintiffs’ property, and were affected by bacterial wilt. The plaintiffs were subsequently unable to meet the quarantine standards for the state market, notwithstanding that their own crop was unaffected. The High Court found that the defendant seed potato suppliers owed a duty of care to the plaintiffs. A recurring theme throughout the judgments was the plaintiffs’ vulnerability with respect to the defendant, and their inability to reasonably to protect themselves against the defendant’s negligence. The Court held that harm of the type suffered by the plaintiffs was foreseeable, that there was no appreciable risk of indeterminate liability, and that it was, accordingly, appropriate to recognise the duty of care, in light of the plaintiff ’s vulnerability. The facts in Marsh lend themselves to incremental development of the existing common law, as previously seen throughout development of the laws of both negligence and nuisance.

68 69

Goldman (n 60) [23]. Perre (n 62).

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Escape of canola purposely planted by the defendant for his own benefit and use seems likely to be consistent with other case law as constituting a ‘substantial and unreasonable interference with the plaintiff ’s enjoyment of his or her land’. The likely turning point would probably be whether the germination on the plaintiff ’s land constituted interference that was substantial and unreasonable, or something less, not supporting a successful cause of action. With respect to the negligence claim, the likely issue might be whether the defendant acted reasonably in deciding to swathe, noting the previous history of seed dispersal onto the plaintiff ’s property. The outcome of that claim would depend on established tests of what the reasonable person in the defendant’s position would have done. Unfortunately, as the decisions in both the Western Australian Supreme Court and the Court of Appeal have demonstrated, the dispute has not proven to be that straightforward. Rather than relying on the common law of negligence and nuisance, the fact scenario has instead been complicated substantially by the extensive regulatory frameworks governing the respective farming methods used by plaintiff and defendant. The plaintiffs’ enterprise was certified as an organic producer, through a complex contractual and quasistatutory scheme. The defendant’s cultivation of genetically modified canola was governed by a different, but equally complex, regulatory scheme. The coexistence and inconsistencies between these schemes seem to have occupied a great deal of the Courts’ attention in both instances to, ultimately, little effect.

C. Regulation of What, and by Whom? Cultivation of genetically modified crops in Australia is governed at both the Commonwealth and state levels. The Gene Technology Act 2000 (Cth) permits cultivation of genetically modified crops under licence. In deciding to issue a licence, the regulator established under the Act considers health and environmental implications of granting a licence; issues related to economics and marketing of agriculture are outside its remit, and consequently must be addressed by state and territory counterparts. Monsanto was granted a licence to sell ‘Roundup Ready’ genetically modified canola seed in Australia by the Commonwealth regulator. However it was not until 2010, when the state government lifted its blanket prohibition on cultivation of GMO crops, that Monsanto was able to enter that market. The defendant began growing Roundup Ready canola later that year; dispersed seed from that initial crop, found on the plaintiffs’ property, formed the basis of their claim. The organic certification regulatory scheme exists to ensure that Australian exports described as organic comply with the relevant standard. The plaintiffs’ property first received organic certification status in 2007. Certification occurred via a contract between the plaintiffs and the authority, and provided the plaintiffs with a non-exclusive licence to market their produce as ‘certified organic’ produce. Compliance with the relevant standard was a condition of the contract. The contract provided for termination of the agreement, and revocation or suspension of certification, in the event of non-compliance. The certifying authority operated under the Export Control (Organic Produce Certification) Orders (Cth), made under the Export Control (Orders) Regulations 1982 (Cth), which in turn were authorised by the Export Control Act 1982 (Cth). An Australian government agency was responsible for accreditation of the certifying authority.

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The certifying authority interpreted the standard as requiring that the production chain—including the produce, and inputs to production, and the land itself—be completely free of GMO contamination. On identifying GMO canola plants growing on the plaintiffs’ property, the certifying authority suspended, and then ultimately revoked, certification, forcing the plaintiffs to sell their produce in a non-organic—and lower value—market. Extensive discussion of the competing regulatory frameworks by the Courts arguably did little to resolve the dispute. The first instance judge described the contractual arrangement between the certifying authority and the Marshes as ‘idiosyncratic’;70 also finding that any vulnerability existing on the part of the plaintiffs arose with respect to the certifying authority, rather than the defendant.71 Distinguishing the case from Perre, he stated: [I] am not at all comfortable that the vulnerability concept extends to catch what is a different and essentially self-inflicted contractual vulnerability to NCO of Mr and Mrs Marsh, generating their claimed economic losses. That is especially so when the conduct of contracting party A, which generates the economic harm to party B vis-à-vis their contract might be assessed (objectively) to have been unreasonable conduct, or even conduct in breach of their contractual terms.72

He also identified the unreasonable conduct of the certifying authority in unreasonably and erroneously applying the standard to withdraw certification as the legal cause of the plaintiffs’ economic harm, rather than the defendant’s act of swath harvesting the crop.73 He found against the plaintiffs on both the negligence and nuisance claims, a decision subsequently appealed to the Court of Appeal. The Court of Appeal continued the first instance judge’s approach by considering regulatory arrangements governing GMO cultivation of canola, and organic farming in detail. A split decision in favour of the respondent defendant resulted, largely reflecting the bench’s respective championing of those farming techniques and regulatory schemes while citing common law principles, rather than analysing the relationship between the schemes and the common law.

D. Regulatory Frameworks with Pistols, at Dawn? The lingering question is why the courts invested so much time and effort on interpretation and analysis of two regulatory schemes that coexist with, but do not regulate, the relationship between the parties in dispute? With the GMO regulatory scheme, it was acknowledged during a Senate Committee enquiry into the Gene Technology Bill74 and in subsequent statutory reviews of the Gene Technology Act that the common law of nuisance and negligence would govern claims arising between growers and third parties. Neither party was bound by, nor in breach of, the regulatory framework governing the other’s chosen mode of farming. Nor was it argued that those frameworks were more than minimum standards, or that

70

Marsh (n 58) [2014] WASC 187 [712]. ibid [741]. 72 ibid [321]. 73 ibid [743]. 74 Parliament of Australia Senate Standing Committee on Community Affairs, A Cautionary Tale: Fish Don’t Lay Tomatoes: A Report on the Gene Technology Bill 2000 (November 2006) [6.30]. 71

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either party was non-compliant with respect to its own standards, with the exception of the canola contamination leading to revocation of the plaintiffs’ certification. Ultimately, the Court of Appeal resorted to discussion of the standard of care required of the defendant, and causation, in a claim for negligence; and the ‘hypersensitivity’ of the plaintiff, in nuisance. The majority (Newnes and Murphy JJA) respectively found the defendant did not owe a duty of care to the plaintiff, or that if he did owe a duty, he did not breach it by his choice of harvesting method. McLure P (dissenting) found the defendant breached the duty of care by adopting swathing for harvesting, and that loss of certification was both reasonable and open to the certifying authority, and was not a novus actus interveniens. In considering the nuisance claim, the Court considered whether organic farming constituted a ‘hypersensitive activity’, based on the 1889 decision in Robinson v Kilvert.75 In adopting the hypersensitivity test in Marsh v Baxter, the Court did not address recent criticism of it in the United Kingdom—the test’s jurisdiction of origin. In Network Rail Infrastructure v CJ Morris,76 Lord Justice Buxton said: [I]t is difficult to see any further life in some particular rules of the law of nuisance, such as for instance the concept of ‘abnormal sensitiveness’ drawn from Robinson v Kilvert. That rule was developed at a time when liability in nuisance, for damaging a neighbour by use of one’s own land, was thought to be strict … It is very difficult not to think that such particular rules are now subsumed under the general view of the law of nuisance expressed in Delaware Mansions: not dissimilarly to the way in which generalisation of the law of negligence initiated by Donoghue v Stevenson has rendered obsolete the previous categories of dangerous chattels; duties of occupiers of land; duties attached to specific trades; and the like.77

To his examples of particular rules of law that had subsequently been ‘subsumed under the general view of the law’, Buxton LJ could easily have added the rule from Rylands, discussed earlier, which in Australia was overturned by the High Court in Burnie Port Authority v General Jones.78 Ultimately, opinion differed as to whether or not organic farming constituted a ‘hypersensitive’ use of the Marsh property: McLure P found that it did not; the majority, emphasising the rarity of organic farmers in the Kojonup region at the time, found that it did.

E. From Little Things, Big Things Grow? Marsh was the subject of a Special Leave Application (SLA) to the High Court. That SLA was rejected in February, 2016. The rejection was disappointing, as the Court’s approach to the case would potentially have provided much-needed clarity as to whether, in its view, the regulatory frameworks expressly or by necessary implication modify the common law, or coexist alongside the common law of negligence and nuisance without affecting their

75

Robinson v Kilvert (1889) LR 41 Ch D 88. Network Rail Infrastructure Limited (formerly Railtrack PLC) v CJ Morris (t/a Soundstar Studio) [2004] EWCA Civ 172. 77 ibid [35]. 78 Burnie Port Authority v General Jones [1994] HCA 13, (1994) 179 CLR 520, eg, [18], [23] and [33] (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ). 76

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application. In the absence of express legislative intention, the last of these is preferable for the sake of legal coherence, to avoid evolution of a system where similar disputes have differing outcomes based on whether farmers are governed by particular regulatory frameworks, such as organic or GMO farming, or simply farming according to less-tightly regulated conventional practices. Choice of farming practice should not, for example, make a farmer more or less susceptible to interference from, or to liability for interference with, neighbours. In that sense, we can infer that the Court may have been asked to consider whether a non-organic cereal farmer, finding conventional canola contamination in his crop from a neighbouring property, might also have claims in negligence and nuisance, notwithstanding the higher degree of tolerance for such contamination in conventional farming standards. At the very least, the complexity of the statutory interpretation in the Marsh judgments should put Australian legislatures on notice that, if the intent of legislation is coexistence with existing common law principles, as seems to be the case here, express statements describing the intended relationship between existing common law and the legislation may be required in future revisions.

IV. Section 18C of The Racial Discrimination Act—a Clayton’s Defamation Claim? In August 2014, a mere six months ahead of the fortieth anniversary of the Racial Discrimination Act 1975 (Cth) (RDA), then Prime Minister Tony Abbott announced that the Government was abandoning its controversial efforts to reform section 18C of the Act. Subsequently, a number of senators combined to introduce a private member’s Bill containing the same provisions, currently under consideration in the Senate at the time of writing. The proposed reforms of section 18C were prompted—at least in part—by the 2011 Federal Court decision in Eatock v Bolt.79 Indeed, so great was controversy over the decision that the coalition parties made reforming section 18C an election commitment, in the event they won office. They did, and subsequently resiled from that commitment. The aftermath of Eatock, therefore, presents an example of case law influencing statute in the most direct way imaginable—as a catalyst for legislative reform.80 However the Eatock judgment itself provides an interesting illustration of the court ‘importing’ common law principles, and straining in its interpretation of legislation, to accommodate a claim to which it was ill-equipped to respond. A better outcome may have been for the court to decline to apply the RDA in the way sought by the plaintiffs. Eatock concerned a claim brought under the RDA, legislation focused on ‘elimination of racial and other discrimination’.81 In particular, the Act focuses on acts ‘done because

79

Eatock v Bolt [2011] FCA 1103. A Stone, ‘The Ironic Aftermath of Eatock v Bolt’ (2015) 38 Melbourne University Law Review 926. 81 Racial Discrimination Act 1975 (Cth)—An Act relating to the Elimination of Racial and other Discrimination. See also L McNamara, Regulating Racism: Racial Vilification Laws in Australia (Leichhardt, Federation Press, 2002); K Gelber and A Stone (eds), Hate Speech and Freedom of Speech in Australia (Leichhardt, Federation Press, 2007). 80

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of race, culture, descent, national or ethnic origin of a person’; however it stops short of criminalising such acts,82 and provides little in the way of meaningful penalties for those found to be in breach. Section 18C addresses ‘offensive behaviour because of race, colour, or national or ethnic origin’, providing that: (1) It is unlawful for a person to do an act, otherwise than in private, if: (a) the act is reasonably likely, in all the circumstances, to offend, insult, humiliate or intimidate another person or a group of people; and (b) the act is done because of the race, colour or national or ethnic origin of the other person or of some or all of the people in the group.

In Eatock, the plaintiff took action under section 18C against conservative newspaper columnist Andrew Bolt, and his publisher, Herald & Weekly Times (HWT), over several Bolt posts and articles published in the HWT newspaper, and on its website. The basis of the complaint was that Bolt claimed that prominent, indigenous Australians with lighter features had ‘chosen’ to identify as indigenous in order to qualify for particular benefits. He then proceeded to comment on the family histories of the people featured in his articles and blogs, by way of suggesting that their indigeneity was inauthentic. Unsurprisingly, many of those referred to as examples by Bolt took exception to his comments, and supported Eatock in the litigation. The plaintiff ’s decision to bring her complaint to the Federal Court under the RDA, rather than to pursue the case in defamation, attracted significant comment, both at the time and since. Many felt that the facts fitted within the established parameters of defamation law: the material was published to a third party; it clearly identified the plaintiff, as well as a number of others; and it was likely to lower their reputations.

A. Defamation or RDA? Decisions, Decisions … The critical difference between defamation law and the RDA is that defamation law in Australia is primarily concerned with harm to an individual’s reputation, while the RDA is less specific, providing options for recognition of individual harm, as well as harm caused to a group. Defamation law for this reason has typically been ineffective in providing remedies for racial vilification of groups, but historically has considered that inaccurate application of certain racially based epithets towards individuals is potentially defamatory—for example calling someone a ‘German’ or a ‘Jew’.83 Indeed, the inadequacy of defamation law in protecting the reputation of a group—as opposed to an individual—is one of the frequently cited justifications for racial vilification laws. One criticism of section 18C as applied in this case and embraced by reformers, is its lack of specificity. Because the threshold is low—‘reasonably likely to offend, insult, intimidate or humiliate a person or group of people’—complaints can be brought under section 18C

82 Noting that the racial vilification provisions introduced into the Act, of which s 18C is a part, expressly rejected criminalisation of the relevant conduct, in contrast to calls for criminalisation of such behaviour by activists. 83 See, eg, Slazengers Ltd v Gibbs (1916) 33 TLR 35; Camrose v Action Press (unreported, 1937).

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in the absence of any harm recognisable at law outside the scope of the RDA (and similar anti-discrimination Acts).84 Many things may be likely to offend, for example; however not all of them will occasion reputational harm. Some commentators have described section 18C—incorrectly—as providing a remedy for ‘subjectively determined hurt feelings’. Such views have been persuasive in some political circles, notwithstanding that tests developed in the case law for each of the harms identified in the Act clearly exclude triviality, and that the harm in question must have been ‘reasonably likely in all the circumstances’, referring to an objective assessment. Notwithstanding that, defamation law provides a higher, externalised, threshold for harm: it focuses on the effect of the defamatory statements on the person’s reputation in the mind of others, rather than its subjective effect on the person defamed, logically demanding a higher standard of objective analysis. Another troubling aspect of the case was the lack of clarity surrounding the identity of those who suffered harm under section 18C: subsection (a) of the legislation requires that the act be ‘reasonably likely, in all the circumstances’, to ‘offend, insult, humiliate or intimidate another person or a group of people’. The plaintiff ’s claim for personal offence was not the basis of the ultimate judgment in her favour, as it was not raised until late in the proceedings.85 Instead, the plaintiff ’s claim proceeded on the basis that the act of the defendant was reasonably likely to offend another group of people. Two ‘groups’ of people were identified: a ‘broad-group’, consisting of ‘Aboriginal persons of mixed descent who have a fairer, rather than darker skin, and who identify as Aboriginal persons in accordance with the popular meaning of those words’,86 and a ‘narrower sub-group’, consisting of the individuals identified in Bolt’s articles.87 Bolt’s articles did not make any broad-ranging statements denigrating the aboriginal population, or even the broad group, directly. Rather, the articles sought to prove emergence of a ‘trend’ amongst members of the broad group, by exemplifying specific individual members of that group, with the consequence that it could cause harm to that group: Whilst the Newspaper Articles identified named individuals, those individuals are portrayed as examples of a ‘trend’ involving a wider group of individuals. The wider group is identified primarily by skin colour and heritage—‘white Aborigines’ or similar description. A fair-skinned Aboriginal person with the attributes that I have identified who is not named in the articles will perceive that the people identified have similar attributes to her and that they are put up as examples of people like her. She is reasonably likely to perceive the articles as speaking indirectly of her and to her. She would be reasonably likely to fear that there will be many people who will read and agree with the imputations conveyed by the Newspaper Articles and will, as a result, attribute to her the negative characteristics attributed by the articles to those named within them and which are ascribed more generally to ‘white Aborigines’.88

84 Some commentators have characterised s 18C as a subjective test (see, eg, J Allen, ‘Hate Speech Law and Disagreement’ University of Queensland TC Beirne School of Law Research Paper 14–15 (2013)). The Racial Discrimination Commissioner has pointed out that the courts have interpreted the section as imposing an objective standard as the test for harm, on the basis of ‘reasonably likely in all the circumstances’. 85 Eatock (n 79) [276] (Bromberg J). 86 ibid [280]. 87 ibid [300]. 88 ibid [287]–[288].

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From an alternative perspective, it could also be argued that the articles imply the indigenous community is susceptible to being exploited by individuals claiming benefits of indigenous identification to which they are not entitled, imputing that the indigenous population is gullible or in need of paternalistic intervention to protect it from its own susceptibility. Either way, any harm resulting to the broad group from the publications of the articles is indirect, rather than the result of an overt statement by Bolt. An interesting thought experiment would be to consider the likelihood of harm in the event an indigenous-identifying author had written an article claiming some members were claiming a heritage they were not entitled to: it is questionable whether relief under the RDA would have been sought under those circumstances. More problematic, however, is the Court’s reasoning in relation to the ‘narrower- subgroup’, in the alternative that its findings regarding the broad group, to which each of the nine narrower sub-group members belonged, were wrong: Each of those nine persons meet the definition of a person in the broad group, and as I have found that it is reasonably likely that people in that group would have been offended, insulted, humiliated or intimidated, it is unnecessary that I consider the position of a sub-group. However, in case I am wrong in relation to my findings as to the broad group, I will indicate the findings I would make in relation to the sub-group.89

The Court found that members of that narrower sub-group ‘share a common attribute’, in that each had been identified and directly criticised in the articles, which was ‘rationally related to whether they were reasonably likely to be offended.’ That identification and criticism was found to ‘add a personal dimension to the attributes of the ordinary and reasonable group member’ beyond members of the broader group,90 strengthening the ‘extent of offence, insult and humiliation’ beyond that reasonably likely to have been experienced by members of the broad group. Even though this consideration of the ‘narrower sub-group’ was considered in the alternative to the preferred formulation of the ‘broad group’, it potentially creates confusion over how such a sub-group should be defined. As the Court acknowledged, the principal criteria for defining the sub-group members is that they were all identified and directly criticised, not that they shared race, culture, or ethnic background. Similarly, the extended degree of hurt or humiliation each of them may have felt was not attributable to their racial or cultural identity as members of that narrower subgroup, but rather because the criticism was directed at them personally, and their personal reputation and credibility, rather than that of any sub-grouping based on race or culture. In effect, the court rejected the claim for personal harm, and then circumvented its own rejection of personal claims by collectivising a set of personal claims, and terming them a ‘sub-group’. In Eatock, the sub-grouping on the basis of attributes other than race or culture was secondary to the initial grouping, which was done on the basis of racial and cultural attributes. In doing so, the case recognised an extension of the ‘group’ harm that was specific to the members of the sub-group, in a way that is not a necessary inference of the legislation. This can be contrasted with, for example, further refining of a group into sub-groups based

89 90

ibid [300]. ibid [301].

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on attributes such as tribal affiliation, cultural groupings, or geographical colocation, for example, when the nature of the act in question specifically targets those attributes. If the requirement for race or cultural or ethnic attributes within a group cannot be met, then the grouping is arguably an invalid one, and the claims should be assessed on the basis of individual harm, not as an artificial collectivisation of a number of individualised, but excluded, claims based on a spurious commonly held attribute. If, conversely, this is an acceptable criterion for creating subgroups within a broader, racially or culturally identified group, this should be expressly stated through legislative amendment, rather than as a by-product of judicial interpretation. Race, culture, and ethnic identity are the critical themes of the RDA; logically they should pervade all considerations of claims under that Act, regardless of whether the plaintiff is claiming for individual harm, group harm, or something else. The unsatisfactoriness of the RDA as a vehicle for this dispute goes beyond the contortions required to make the plaintiffs fit the legislative provisions, and criticisms about the relative objectivity of the harm, and its severity, to encompass the remedies available once breach of the Act had been established.91 The court found that many of the facts asserted by Bolt in the articles were untrue, and would have been disproved either by the defendant during his research, had he exercised some degree of care, or by the plaintiffs prior to filing the claim in the Federal Court. Yet there is no mechanism for ‘aggravating’ sanctions against racially motivated acts under the RDA. An untrue act, attributable to malice or recklessness, is punishable in the same way as one whose truth can’t be proven, thereby failing to satisfy the requirements of the exemptions to section 18C contained in section 18D. Those sanctions proved remarkably weak: the defendants were ordered to publish notices stating that the relevant blogs and articles contravened the RDA. No financial penalties were available; the notices did not specifically identify the factual inaccuracy of the articles; and the defendants were not required to retract their statements. The order of the court obscures the far more significant consequences of Bolt’s case: first, that as a journalist, he was comprehensively discredited on the basis that many of the facts he asserted were found by the judge to be untrue; and secondly, that the individuals concerned did not explicitly receive any recognition of the fact that their reputations had been harmed by the comments—which, in most cases, were a direct attack on their personal integrity, essentially accusing them of gaming the system to gain benefits to which they were not really entitled. A more powerfully worded apology discrediting the content of the articles and blogs, accompanied by a public apology and acknowledgement of the factual inaccuracies would have done far more to restore the reputations of those identified in Bolt’s writing than the rather paltry remedy available under the Act. A further reason for thinking that this was a case brought under legislation that was not really designed to handle it comes from the judge’s extensive reliance on ‘imported’ defamation law in interpreting and applying the RDA in the judgment. Particularly evident in the sections of the judgment dealing with exemptions to section 18C provided under section 18D of the Act, the court frequently referred to common law principles from the law

91 Stone (n 80); K Gelber and L McNamara, ‘Freedom of Speech and Racial Vilification in Australia: “The Bolt Case” in Public Discourse’ (2013) 48 Australian Journal of Political Science 470.

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of defamation, typically to bridge a gap in reasoning between the facts in the case, and the legislative provisions. For reasons discussed earlier, this is a problematic approach, as the defamation defences are context-specific with regard to the harm they consider: applying them to a much broader range of ‘harms’ of the type protected under section 18C of the RDA de-contextualises them, and undermines the reasons they arose. Ultimately, this decision on the part of the plaintiff and her legal advisors resulted in a vindication for them in the court, but triggered a widespread debate over the scope of section 18C which is likely to lead to some reform of the provision.

V. Conclusion This chapter has considered the various uses of common law in situations where legislation specific to the general activity giving rise to the dispute exists, but does not specifically address the effect on the common law of that legislation. It further develops Pound’s concept of the use of legislation, by identifying a sixth category: situations where the courts could—and arguably should—refuse to adopt a construction of the legislation where to do so would result in consequences for the common law exceeding what was foreshadowed by the legislature, including incoherence within the common law itself. McKenna showed how inappropriate construction of legislation based on a narrow consideration of its purposes and scope of function can potentially abrogate common law rights and protections in a way that is inconsistent with common law and human rights. Marsh illustrated how detailed interpretation of complex legislated regulatory schemes can distract judicial attention away broader contextual questions about the effect of the legislation on established common law relationships between parties, in a way that yields no benefit to the law in general, or the parties in particular. Eatock demonstrated a situation where the courts could legitimately have declined to construe the RDA in the way proposed by the plaintiffs, and instead suggested an alternative common law cause of action that would have better suited the facts of the case. In each case the Bench invested a great deal of time and effort in statutory interpretation and construction of legislation to make it ‘fit’ the facts; missing from that effort was consideration of the broader strategic questions, such as: does the legislation apply? Does the legislation expressly, or by necessary inference, exclude or modify common law rules? Is the legislation the best means of resolving this dispute? And what is the effect of this particular interpretation on the coherence of the law as a whole? Policy considerations are a well-documented reason for refusing to recognise a duty of care in certain circumstances under the law of negligence; legal policy considerations, including the effect of specific interpretations or applications of legislation to the facts of certain cases on the coherence of the law as a whole should be no less relevant.

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8 Constructive Trusteeship: The Perils of Statutory Formulae DARRYN JENSEN

I. Constructive Trusts in the Marshall Islands A. The Scheme of Liability The Trusts Act 1994 (Marshall Islands) is incorporated into the Marshall Islands Revised Code 2012 as Title 50, Chapter 1. Section 126(1) of Chapter 1 provides as follows: Subject to paragraph (2), where a person (in this Section referred to as a constructive trustee) makes or receives any profit, gain or advantage from a breach of trust he shall be deemed to be a trustee of that profit, gain or advantage.

Paragraph (2) provides that a ‘bona fide purchaser of property for value and without notice of a breach of trust’ does not become a constructive trustee. Paragraph (3) provides that a constructive trustee ‘shall deliver up the property of which he is a constructive trustee to the person properly entitled to it’. Finally, paragraph (4) states that section 126 ‘shall not be construed as excluding any other circumstances under which a person may be or become a constructive trustee’. Accordingly, section 126 does not exhaust the meaning of ‘constructive trustee’ for the purposes of Marshall Islands law, but it does make constructive trusteeship an automatic consequence of transactions in which a trustee receives a profit, gain or advantage. The potential breadth of application of section 126 becomes apparent when one examines the meaning of ‘breach of trust’ for the purposes of Chapter 1. Section 101A defines ‘breach of trust’ as ‘a breach of any duty imposed on a trustee by this Chapter or by the terms of the trust’. These duties include those mentioned in section 114. These include a duty ‘to carry out and administer the trust in accordance with its terms’1 and a duty not to ‘directly or indirectly profit from his trusteeship … cause or permit any other person to profit directly or indirectly from such trusteeship … or … on his own account enter into any transaction with the trustee or relating to the trust property which may result in such profit’.2 In other words, deeming a person to be a constructive trustee is a potential 1 2

Marshall Islands Revised Code, Title 50, c 1 (Trusts Act 1994) s 114(2). ibid s 114(4).

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consequence of both a breach of a trustee’s positive duty to perform the trust and a breach of the trustee’s proscriptive fiduciary duties. Section 114 also mentions a trustee’s duties to act ‘as would a prudent person … to the best of his ability and skills’3 and to ‘keep accurate accounts and records of his trusteeship’.4 The structure of the legislation contemplates that a person might become a constructive trustee by reason of a breach of any one of those duties, but failures to perform the trust by misappropriating trust property and breaches of the proscriptive fiduciary duties are more likely to result in trustees making profits so as to activate section 126. Peter Jaffey has recently stated that a claimant is entitled to a remedy that ‘so far as possible corrects the wrong by securing to [the claimant] the benefit of the duty owed [by the defendant]’.5 In other words, remedies should attempt to replicate primary rights. The trustee’s duty to perform the administration, inter alia by dealing with the trust property only in accordance with the terms of the trust, and the trustee’s proscriptive fiduciary duties, are normatively distinct. The former is concerned with the positive entitlements of the beneficiaries under the terms of the trust, whether or not the unauthorised transaction was a self-interested one, while the latter is concerned with prohibiting the trustee from acting in a self-interested way. Logically, the wrong of failing to perform the administration should generate a response which puts the trust estate in approximately the position in which it would have been had the administration been performed correctly. The wrong of acting in a self-interested way should generate a response which deprives the trustee of the benefits of the self-interested transaction. Therefore, it is odd that the consequence of both types of breach of duty should be conceived in terms of disgorgement of profits.

B. Misappropriations of Trust Property A trustee who uses trust money to purchase an appreciating asset for her or his own benefit receives a profit, gain or advantage by reason of a breach of trust, but the receipt of a gain is not the crucial matter. The trustee’s duty is to use the trust property only in accordance with the terms of the trust. The ‘wrong’ is the use of trust assets for a purpose which is not authorised by the terms of the trust. This is a breach of duty whether or not the trustee acquires a profit, gain or advantage. Deeming the trustee to hold any profit, gain or advantage acquired by reason of the breach of trust for the beneficiary has the effect of ensuring that the trustee retains no benefit from the breach of duty, but it cannot be said that it has the rationale of depriving the trustee of any benefit. The beneficiary is certainly entitled to the asset that the trustee acquired using trust money and to any subsequent appreciation in the value of the asset, but the reason why the beneficiary is so entitled is that the trustee, if she or he had acted in accordance with her or his duty, would have acquired appreciating assets for the benefit of the trust estate. The remedial goal is not profit-stripping but securing for the beneficiaries what rightly belongs to them. One might observe that the language of constructive trusteeship is superfluous in this context. Certainly, in Foskett v McKeown,6

3

ibid s 114(1). ibid s 114(5). 5 P Jaffey, ‘Explaining the Trust’ (2015) 131 LQR 377, 380. 6 Foskett v McKeown [2001] 1 AC 102. 4

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Lord Millett managed to explain the nature of the beneficiary’s claim without using such language: The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his own option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. … If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself. There is nothing unfair in this.7

The beneficiary’s ownership rights in respect of the original trust asset are transmissible to the traceable proceeds of the asset because such transmissibility is an attribute of the trust relationship. As Ross Grantham and Charles Rickett have explained, ‘The corollary of the trustee’s power effectively to transfer trust assets is that any assets received in exchange are made subject to the same equitable interests as bound the original trust assets.’8 This idea is sometimes expressed in terms of the beneficiary’s ownership being ‘property in a fund’,9 rather than in particular assets. Therefore, the notion of profiting from one’s own wrong is superfluous to the justification of the proprietary remedy for misappropriation of trust property. The idea that the proprietary remedy for misappropriation of trust property is grounded in the trustee’s proscriptive fiduciary duties had, prior to Foskett v McKeown, acquired considerable traction. In Scott v Scott,10 the High Court of Australia observed that there was ‘abundant authority for the proposition that if trust moneys have been exclusively used in the purchase of property the beneficiary may elect to take the property itself ’ and that ‘if trust funds from two different estates are exclusively used by a common trustee in the purchase of land in his name which has increased in value each estate will be held entitled to a proportionate part of the increase’.11 Accordingly, there was no reason why ‘a trustee who has mixed moneys of his own with trust moneys for the purpose of purchasing lands which have greatly increased in value be held entitled, upon repayment of the trust moneys misapplied, to retain the whole of any profit which has resulted … from the misuse of the trust moneys’.12 The beneficiary’s claim to the whole or a proportionate share of the asset was said to rest ‘upon a twofold basis’, namely a trustee’s liabilities ‘to make good a breach of trust’ and ‘to account for a profit which accrued to him’.13 In other words, the beneficiary was to be understood as having two claims—a claim that the trustee must restore the value of the misappropriated asset to the trust estate and a claim that the trustee must disgorge

7

ibid 130. R Grantham and C Rickett, ‘Property Rights as a Legally Significant Event’ (2003) 62 CLJ 717, 747. Contrast Professor Birks’s view that the law gives the transferred wealth back to the beneficiary ‘by raising a new proprietary right in the substitute’: P Birks, ‘Property, Unjust Enrichment and Tracing’ (2001) 54 Current Legal Problems 231, 247. 9 R Nolan, ‘Property in a Fund’ (2004) 120 LQR 108, 109. 10 Scott v Scott [1963] HCA 65, (1963) 109 CLR 649. 11 ibid [10]. 12 ibid [10] (emphasis added). 13 ibid [9]. 8

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any profit that she or he has made by reason of the misappropriation. The claim to the whole or a proportionate share of the asset was an aggregation of those two claims. Surely, if a trustee has a positive duty to perform the administration in accordance with the terms of the trust and this includes, as will usually be the case, a duty to make profitable investments of trust funds, justifying a beneficiary’s claim to assets acquired by the trustee by way of misappropriation of trust assets is simply a matter of referring to the trustee’s duty to perform the administration. Had the trustee performed the administration, the trust estate would consist of the proceeds of the trustee’s profitable investments. Allowing the beneficiary to claim the asset acquired using misappropriated trust funds puts the trust estate in the position in which it would have been had the administration been performed. The idea that the trust estate is to be put in the position in which it would have been had the trustee performed its duty is implicit in the provision of the Marshall Islands Trusts Act, which defines the trustee’s personal liability for breach of trust. Paragraph 123(2) states that a trustee who is in breach of trust ‘shall be liable for … the loss or depreciation in value of the trust property resulting from such breach … [and] … the profit, if any, which would have accrued to the trust property if there had been no such breach’. This provision merely divides into two components what would need to be done in order to restore the trust estate to the position in which it would have been had the trustee invested trust funds in authorised investments. The profit that would have been earned had the trustee performed the administration is part of the loss occasioned by the breach of trust. A plaintiff beneficiary’s right to elect between a proprietary claim to the proceeds of the misappropriated asset and a personal claim against the trustee for breach of trust, affirmed by Lord Millett in Foskett v McKeown,14 is a choice between two means of putting the trust estate in the position in which it would have been, had the trust been performed. Section 126 of the Marshall Islands Trusts Act, on the other hand, in focusing upon ‘profit, gain or advantage from a breach of trust’ diverts our attention from the most straightforward justification for the beneficiary’s equitable proprietary claim to the proceeds of misappropriation of trust assets. A plausible explanation for the focus on disgorgement of profit is the influence of United States jurisprudence on constructive trusts.15 In Beatty v Guggenheim Exploration Co,16 Justice Cardozo said that ‘When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.’17 Article 160 of the Restatement (First) of Restitution (1937) translated that statement as follows: Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises.18

14

Foskett (n 7). The Republic of the Marshall Islands has been an independent state since 1986. It had previously been under US administration, being the easternmost part of the UN Trust Territory of the Pacific Islands. (Central Intelligence Agency, The World Factbook, www.cia.gov/library/publications/resources/the-world-factbook/index.html. 16 Beatty v Guggenheim Exploration Co (1919) 225 NY 380. 17 ibid 386. 18 Art 55 of the Restatement (Third) of Restitution and Unjust Enrichment (2011) maintains the link between unjust enrichment and proprietary constructive trusteeship but emphasises that constructive trusteeship is a 15

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Warren Seavey and Austin Scott said that ‘The conception of the Restatement is that a constructive trust is a remedy created to enforce a right of restitution arising out of unjust enrichment, and that it arises in every case where a benefit consisting of property has been received as to which there is a duty to make restitution to another.’19 The Restatement states that not every situation ‘in which a person holding title to property is subject to an equitable duty to convey it to another’ is an example of a constructive trust. The term ‘constructive trust’ is used to describe an equitable duty to convey an asset so as to reverse an unjust enrichment of the legal owner of the property. The situation where ‘a person who has made an enforceable contract to sell land is under such a duty’ is offered as an example of a duty to convey which is not properly described as a constructive trust.20 Yet, situations ‘where the defendant makes a profit through the consciously wrongful disposition of the plaintiff ’s property [so that] he can be compelled to surrender the profit to the plaintiff and not merely to restore to the plaintiff his property or its value’ seem to be understood as constructive trusts.21 The Restatement, then, would appear to comprehend the beneficiary’s proprietary claim which arises upon a profitable misappropriation of trust assets as activated by the unjust enrichment of the trustee. The trustee is enriched by the taking of the trust asset and by any profits acquired by dealing with that property. It has previously been remarked that this twofold explanation is not the most straightforward explanation for the beneficiary’s proprietary claim. That more straightforward explanation was provided by Lord Millett in Foskett v McKeown. In a proprietary claim for the traceable proceeds of a trustee’s misappropriation of trust assets, the claimants ‘seek to vindicate their property rights, not to reverse unjust enrichment’.22 There is an important difference between the two explanations. The Restatement envisages the imposition of a duty to convey in circumstances in which it would be unjust for the trustee to retain the asset to which it has acquired legal title. Lord Millett in Foskett v McKeown envisaged that the trustee already had a duty to hold upon trust any assets which are the traceable product of the assets that were settled upon trust.

C. Fiduciary Gains Trustees who renew leases previously held in their capacity as trustees for their own benefit (as in the classic case of Keech v Sandford)23 acquire something of value for themselves by way of a breach of fiduciary duty. The content of the duty is that a trustee shall not act in such a self-interested way. The content of the duty demands that the trustees be stripped of

iscretionary remedy: ‘If the defendant is unjustly enriched by the acquisition of title to identifiable property at d the expense of the claimant or in violation of the claimant’s rights, the defendant may be declared a constructive trustee … of the property in question and its traceable product’ (emphasis added). See also K Mason, ‘R3RUE, the Taxonomy of the Constructive Trusts and the Fusion of Law and Equity’ in E Bant and M Bryan (eds), Principles of Proprietary Remedies (Sydney, Lawbook Co, 2013) 97, 108-09. 19

W Seavey and A Scott, ‘Restitution’ (1938) 54 LQR 29, 41. Restatement (First) of Restitution (1937) §160, Comment c. 21 ibid, Comment d. 22 Foskett (n 7) 129. 23 Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223. 20

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any benefit that they acquire by reason of their breach of duty. In other words, the rationale of the duty demands a remedial goal of disgorgement.24 Section 126 of the Marshall Islands Trusts Act, in providing that a constructive trustee ‘shall deliver up’ the property that constitutes the profit, gain or advantage,25 contemplates that a proprietary constructive trust would always be the mechanism by which the goal of disgorgement is achieved. A goal of disgorgement does not, as a matter of logic, demand proprietary relief. In some cases, it may be achieved by requiring the defendant to pay the monetary value of the profit to the plaintiff. Disgorgement of a profit may be achieved either by requiring the defendant to delivery up the asset that represents the profit or by requiring the defendant to pay the monetary value of the profit. There are types of cases, such as where the defendant has acquired and retains an appreciating asset, in which disgorgement of the asset by means of a proprietary constructive trust would be the only effective means of depriving the defendant of the entire profit acquired by reason of the breach of duty. The facts of Attorney-General for Hong Kong v Reid26 provide an obvious example. In its decision in that case, the Privy Council understood proprietary constructive trusteeship to be an automatic consequence of the defendant’s acquisition of a profit from a breach of duty.27 Even so, since disgorgement of the asset is not logically required in order to give effect to a remedial goal of disgorgement of the value acquired by the defendant, the defendant’s constructive trusteeship might equally be understood either as a default consequence which should not be imposed where it would have adverse consequences for third parties28 or as a ‘sledgehammer’29 which should be used only in cases where a monetary remedy would not suffice to bring about complete disgorgement. It might be said, in terms of Rafal Zakrzewski’s distinction between ‘replicative’ and ‘transformative’ remedies,30 that these alternative interpretations look upon constructive trusteeship as a transformative remedy. The plaintiff did not have a property right prior to the court’s order. The court’s order transforms the claimant’s right to disgorgement of value into a right to the disgorgement of a particular asset.31 The author has elsewhere expressed a preference for the ‘sledgehammer’ interpretation,32 but justifying 24 It has been observed that stating the rationale of disgorgement of fiduciary gains in this way does not explain why the beneficiary-principal should be entitled to the benefit which the fiduciary is to be deprived of. See especially M Harding, ‘Constructive Trusts and Distributive Justice’ in E Bant and M Bryan (eds) Principles of Proprietary Remedies (Sydney, Lawbook Co, 2013) 19, 32–33. P Miller has sought to explain the beneficiary-principal’s entitlement in terms of the fiduciary’s discretionary powers as a means which belongs to the beneficiary-principal. The right that the fiduciary avoid making a personal profit ‘should be interpreted as including an implied entitlement to profits realized through the exercise of fiduciary power’. See P Miller, ‘Justifying Fiduciary Remedies’ (2013) 63 University of Toronto Law Journal 570, 615. 25 Marshall Islands Revised Code, Title 50, c 1 (Trusts Act 1994) s 126(3). 26 Attorney-General for Hong Kong v Reid [1994] 1 AC 324 (PC) is an obvious example. 27 ibid 331 (Lord Templeman). For a defence of this view, see Lord Millett, ‘Proprietary Restitution’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Lawbook Co, 2005) 309, 323–24. 28 W Gummow, ‘Bribes and Constructive Trusts’ (2015) 131 LQR 21, 26. 29 R Austin, ‘The Melting Down of the Remedial Trust’ (1988) 11 University of New South Wales Law Journal 66, 84. 30 R Zakrzewski, Remedies Reclassified (Oxford, Oxford University Press, 2005) 79. 31 ibid 80. Zakrzewski said that a remedial constructive trust is ‘a proprietary right given in the court’s broad or strong discretion in circumstances where the claimant did not have proprietary rights before the order was made’. It might be observed that the new right created by a remedial constructive trust has a logical connection to the plaintiff ’s pre-existing rights that (1) the defendant not make a profit and (2) that the defendant disgorge the value of that profit. The transformation is limited to the means by which the disgorgement is to be effected. 32 D Jensen, ‘Proprietary Remedies: Distributive or Commutative?’ (2014) 38 University of Western Australia Law Review 1, 27. The comments of the High Court of Australia in Bathurst City Council v PWC Properties Pty Ltd

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that particular interpretation is not the object of the present discussion. It suffices for present purposes to note that section 126 entrenches the notion that constructive trusteeship, in its full proprietary sense, is an automatic consequence of a trustee making a profit from a breach of fiduciary duty.

II. The Roles of Statute Law Statute law is nowadays so commonplace, and so often looked upon as a cure for whatever ills the law is perceived to suffer from, that the question of what justifies legislating on a particular topic at all is seldom considered. Yet, this is an important question for private law in the English common law tradition. The existence of a framework of legal principle which was been worked out and interpreted on a case-by-case basis over several centuries continuously poses the question of whether things are best left as they are. The Austro-British economist, Friedrich Hayek, devoted considerable attention to this question. From the outset, it is important to understand that Hayek distinguished law (properly so called) from other institutions which are often described as law: To qualify as law … the rules enforced by government had to possess certain attributes which a law like the English Common Law of necessity possessed, but which the products of legislation need not possess: they must be general rules of individual conduct, applicable to all alike in an unknown number of future instances, defining the protected domain of the individuals, and therefore essentially of the nature of prohibitions rather than of specific commands.33

Accordingly, the products of legislation were law (properly so called) only to the extent that they possessed these attributes. While Hayek thought that law would ‘in the first instance be the product of spontaneous growth’ aided by the efforts of judges as interpreters of the body of law, the ‘occasional intervention’ of the legislature was necessary ‘to extricate [law] from the dead ends into which the gradual evolution may lead it, or to deal with altogether new problems’.34 Hayek seems to have contemplated that legislation would have a supplementary role in relation to the common law. Legislation was necessary where the interpretive enterprise of the common law had reached a dead end in relation to a particular question or an urgent answer was required to a new question to which the existing body of law provided no clear answer. The legislature, when answering that question, must do so by enacting a rule which has the same formal characteristics as the common law rules, primarily that it is a rule of individual conduct—that it is ‘abstract, impersonal, and purpose-independent’.35

(1998) 195 CLR 566, 585 [42], Giumelli v Giumelli (1999) 196 CLR 101, 125 and John Alexander’s Clubs v White City Tennis Club Ltd (2010) 241 CLR 1, 45–46 [129] are consistent with the ‘sledgehammer’ interpretation, even if they fall short of unequivocal endorsement of it. 33 F Hayek, ‘Liberalism’ in New Studies in Philosophy, Politics, Economics and the History of Ideas (London, Routledge, Kegan & Paul, 1978) 119, 134–35. 34 F Hayek, Law, Legislation and Liberty (Vol 1: Rules and Order) (London, Routledge, Kegan & Paul, 1973) 100. 35 T Zywicki, ‘Hayek’s Jurisprudence: And Ratnapala’s Hayek’ (2014) 33 University of Queensland Law Journal 311, 318.

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Such legislation is enacted against the background of the common law and, somewhat like a piece of a jigsaw puzzle, fits into a larger framework supplied by the common law. This gap-filling role did not exhaust Hayek’s conception of the role of legislation. The role of government includes the enforcement of the rules of individual conduct. Accordingly, there is a need for ‘the law of organisation, of the superstructure of government originally erected only to ensure the enforcement of private law’.36 The rules of individual conduct can be identified with private law and the law of organisation with public law.37 It might be observed that Hayek’s distinction between private law and public law corresponds roughly with Ernest Weinrib’s distinction between ‘private right’ and ‘public right’, in which the latter ‘refers to a condition in which public institutions actualize and guarantee’ private rights.38 Beyond the gap-filling and organisational roles of legislation, Hayek recognised a need for legislation ‘to make the market mechanism operate satisfactorily’, which would include ‘rules which favour the preservation of competition and restrain, so far as possible, the development of monopolistic positions’.39 Hayek’s conception of the role of legislation appears modest in the light of the expansion of legislative activity in recent decades. Kit Barker has commented upon how ‘[a]s law increasingly claims its legitimacy from democracy, so democracy sets law to work in the delivery of its political ends’.40 No social problem is seen to be beyond remedy by way of the enactments of a democratically constituted legislature. Hayek was uneasy about this trend: An assembly with unlimited powers is in a position to use that power to favour particular groups or individuals and it is an inevitable consequence that it will come to be constituted of coalitions of particular interests offering particular benefits to their supporters. The whole modern development of the rise of ‘para-government’, the organized interests pressuring the legislature to intervene in their favour, is a necessary and inevitable result of, any only of, giving the supreme authority unlimited power to coerce particular individuals or groups in the service of particular ends. A legislative assembly confined to the articulation of universally applicable rules of just conduct, whose effects on particular individuals or groups would be unforeseeable, would not be under such pressure ….41

Putting aside the problem of organised interests combining to use legislative means to change the distribution of benefits and burdens in their favour at the expense of other groups in the community, legislation which is designed to produce particular social ends carries the twin risks that it may not be effective in producing those ends and may produce a host of unforeseen and undesirable consequences. Nevertheless, achieving democratically-approved social ends beyond the establishment of the apparatus of government is a prevalent function of modern legislation. One might criticise particular legislation on the basis that it is unwise or misconceived, or be generally cautious about advocating large-scale redistributive schemes, but it must be conceded that legislation which pursues

36 F Hayek, ‘The Confusion of Language in Political Thought’ in New Studies in Philosophy, Politics, Economics and the History of Ideas (London, Routledge, Kegan & Paul, 1978) 71, 78. 37 ibid. 38 E Weinrib, ‘Public Law and Private Right’ (2011) 61 University of Toronto Law Journal 191, 195. 39 Hayek (n 33) 146. 40 K Barker, ‘Private Law: Key Encounters with Public Law’ in K Barker and D Jensen (eds), Private Law: Key Encounters with Public Law (Cambridge, Cambridge University Press, 2013) 3, 5. 41 Hayek (n 36) 100.

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democratically approved social ends does not, as a class of legislation, suffer from a legitimacy problem. The four roles of statute law which have been identified so far are concerned with changing or, at the very least, supplementing the existing law. The gap-filling role provides answers to legal questions which are difficult to answer on the basis of interpretation of the existing legal materials alone. The organisational role of legislation is concerned with creating the apparatus of government, including the law courts and other institutions which centralise and regularise the interpretation and enforcement of the law. The market preservation role is concerned with laying down rules of conduct which prohibit certain uses of monopolistic or oligopolistic power, so as to maintain the conditions of a competitive market economy. Finally, for better or worse, legislation which gives effect to democratically-approved social ends aims to improve social conditions by changing the distribution of benefits and burdens in the community. There is a fifth role of statute law which, if taken at face value, is not concerned with changing the law or adding to the existing body of law. This role might be called the restatement role. Restatements, which are more prevalent in the United States than in other common law jurisdictions, are not statutes but seek to supply ‘a comprehensive and authoritative formulation [of legal doctrine] in a statute-like voice’.42 John Langbein has observed how the Restatement of Trusts ‘has served as a storehouse for legislative drafters’.43 Legislation which has a restatement role does not necessarily aim to change or supplement the law. It may merely aim to state the existing law in a canonical verbal form. Codification might be understood as the restatement role pursued in a particularly thorough way so as to provide a comprehensive statement of an area of law. It is easy to see how restatement statutes might, in an area such as trusts law, be seen to be beneficial. Trustees are a group of persons with complex responsibilities who are not necessarily trained as lawyers. For such a class of persons, a comprehensive and authoritative statement of their duties, powers and rights is desirable as a guide to what they may, must and must not do. It might be thought that a restatement statute makes the law more accessible and transparent.44 It might also be said to have a formative and instructive function in the development of trustees’ capacities to exercise their responsibilities.45 The notion that restatement legislation does not change the law must immediately be qualified. Restatement legislation, even where the intention of the legislature is clearly to do nothing more than restate the existing law, changes the law in the sense that it changes the nature of the guidance which the law gives. A replacement of common law with statute law represents a move from abstract principle to propositions and from provisional rules to definitive rules.46 42 J Langbein, ‘Why Did Trust Law Become Statute Law in the United States?’ (2007) 58 Alabama Law Review 1069, 1081. 43 ibid. 44 Warren Swain, speaking of the codification of contract law, has suggested that the view that codification makes the law more accessible is ‘rather optimistic’: ‘Contract Codification in Australia: Is It Necessary, Desirable and Possible? (2014) 36 Sydney Law Review 131, 139. 45 Of course, sometimes the legislative goal may be to ‘attract business’ to the jurisdiction by changing the law in ways which make it more attractive to settlors or trustees, eg by limiting trustee’s liabilities. I am grateful to Joshua Getzler for making this observation. 46 This may also be true of non-legislative restatements. Their adoption of the tone of a statute may encourage legal practitioners to adopt the restatement as the definitive statement of the law, so that competing i nterpretations

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The other-ness of common law47 in comparison to statute law has three particular aspects. First, while statute law is a body of verbal propositions, the common law is best understood as an ongoing accumulation of decisions which are logically consistent with one another. Peter Jaffey has offered the following account of common law adjudication: A court determines what is just on the facts, and in doing so it draws on previous decisions in accordance with the interpretative method by treating them as authoritative with respect to the justice of the outcome on the facts, and accordingly the rules of the common law are provisional and subject to revision in the exercise of the court’s moral judgement.48

Jaffey contrasted this view of the common law with another view, which he calls the ‘exclusionary rules’ analysis, which he attributes to HLA Hart, Joseph Raz and other legal positivists.49 On that view, the law ‘consists of rules that govern a category of conduct and can be followed without the need for moral judgment’.50 It follows from this view that judicial reasoning has a ‘binary or dichotomous character’, which is ‘concerned first with determining what the existing law is in accordance with authority, and then with determining how to make new law where there is a gap’.51 Jaffey stated that, if the exclusionary rules analysis were correct, ‘one would expect a court to go to great lengths to produce a clear and explicit statement of the rule that it applies or lays down, just as if it were a statutory provision’.52 The exclusionary rules analysis does not harmonise with the facts of judicial practice: [O]ne does not get the impression from the case law that laying down a rule as a guide is even the court’s principal aim. It might seem more accurate to say that the court’s principal aim is to reach a just resolution of the dispute according to law, and that the guidance it provides is to be inferred from this.53

Under the common law, it is decisions, rather than any verbal formulae that judges use in the course of making those decisions, that bind. Those verbal formulae are not definitive and conclusive statements of the relevant legal rule in the way that statutory formulae clearly are. There is no assumption that a future judge might not, in a case which calls for it, articulate an improved version of the ‘rule’. The statement of a statutory rule, on the other hand, is final. If it is found to be defective, in the sense that it does not capture a situation which should, according to moral reasoning, be treated in the same way as other situations captured by the rule or it captures a situation which should not be captured, the only solution is an amending statute.

of the previous legal practice are driven out of consideration. I am grateful to Hanoch Dagan for making an observation to that effect. 47 In the ensuing discussion, the term ‘common law’ refers to both common law, in the strict jurisdictional sense of the term, and equity. 48 P Jaffey, ‘Authority in the Common Law’ (2011) 36 Australian Journal of Legal Philosophy 1, 30. 49 ibid 4. 50 ibid. 51 ibid 6. 52 ibid 7. 53 ibid.

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For Hayek, the role of the common law judge was to maintain an order of permissible actions rather than to maintain a logically consistent set of rules. It did not matter that the range of permissible actions was not exhaustively defined by verbal formulae: So long as the individuals act in accordance with the rules it is not necessary that they be consciously aware of the rules. It is enough that they know how to act in accordance with the rules without knowing that the rules are such and such in articulated terms.54

Knowing how to act is adequate in ‘frequently occurring situations’, but there may be disagreement about how to act in more unusual situations.55 Those more unusual situations give rise to the need for authoritative adjudication of disputes and the articulation of verbal rules as a by-product of the adjudication: Such a person called in to adjudicate will often find it necessary to articulate and thereby made more precise those rules about which there exist differences of opinion, and sometimes even to supply new rules where no generally recognized rules exist.56

When adjudicators have to articulate new rules or make existing rules more precise, they are constrained by the uncontroversial aspects of the order of permissible actions. The new or revised rules ‘will have to fill a definite gap in the body of already recognized rules in a manner that will serve to maintain and improve that order or actions which the already existing rules make possible’.57 Suri Ratnapala, in commenting upon Hayek’s theory of adjudication, has remarked that ‘logical consistency or “elegance” as civil lawyers would call it, has never been the hallmark of the common law system of adjudication’.58 When a common law judge has to consider, for example, whether the law allows an exception to an established rule, the judge’s reasoning ‘is directed more to an examination of the potential conflict of norms as they operate in the factual order’.59 The second aspect of the common law’s other-ness is a necessary companion to the first. If common law rules are provisional and subject to improvement, then the reach of the common law extends beyond the situations captured by the language of the rule. In other words, a decision is binding in respect of all future cases which present the same complex of moral considerations, whether the rule articulated in the decision captures those cases or not. A judge who recognises extensions of, or exceptions, to an existing rule and an appellate court which overrules the decision of another court does not lay down a new rule which has prospective operation only. It applies the ‘new’ rule to the present case.60 For this to be possible, the authority of the common law could not reside in the verbal propositions stated by previous courts: The fundamental constraint the court is under is to conform to previous decisions on their facts, not to apply exclusionary rules previously laid down, and rules are built up by analogical reasoning on the basis of this constraint. … A court can distinguish a previous case and modify the rule it laid down; it can extend a rule or subsume it into a more general rule; and it may even replace the

54

Hayek (n 34) 99.

55 ibid. 56 ibid. 57

ibid 100. S Ratnapala, ‘The Trident Case and the Evolutionary Theory of FA Hayek’ (1993) 13 OJLS 201, 225. 59 ibid 224 (emphasis added). 60 Jaffey (n 48) 8. 58

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old rule with an entirely different rule or body of rules that accounts for the previous decisions in a quite different way. The approach also provides a rationale for overruling: a decision should be overruled if it becomes apparent that it is anomalous in the sense that it does not cohere with other decisions.61

Therefore, while there may be gaps in the verbal articulation of the common law, the absence of a verbal rule which captures the facts of the case does not amount to an absence of reasons for deciding the case one way or the other. Moreover, the existence of a verbal rule which captures the facts of the case does not provide a conclusive reason for deciding the case in the way prescribed by the rule. The reach of a statutory rule, on the other hand, depends upon its language—or, to be precise, with the legislative intention that the language may, using the canons of statutory interpretation, be taken to express.62 One consequence of this is that a statute is a patchwork of rules, rather than an exhaustive statement of the law. It does not govern situations which its language does not capture. Warren Swain has observed that even a code will have gaps and that, in civilian legal systems, judges ‘have refused to confine themselves to the role of interpreter’.63 In countries with a common law tradition, statute law seldom seeks to cover the field in relation to major departments of legal doctrine such as contract, torts, trusts or fiduciary obligations. Instead, legislation is usually targeted at particular factual contexts such as consumer transactions or trustees’ investments. These contextual categories overlap with bodies of common law doctrine but are not coterminous with them, so they cut across the common lawyer’s taxonomy. This may introduce complications into the law by, for example, providing that trustees have to exercise a different standard of care in relation to investments of trust funds from that which they have to exercise in relation to other activities that they carry out as trustees.64 Many of the duties of trustees and company directors are not peculiar to trustees and company directors, so redefining trustee’s duties or company director’s duties by statute differentiates the duties owed by those classes of people from duties owed by other people who owe fiduciary duties or duties of care and adds a layer of complexity to the law. There may, in many cases, be good reasons of public policy which justify introducing the complications, but they are nonetheless complications. Finally, restatement legislation may have the effect of entrenching what was, at the time of enactment, the dominant theoretical justification for the relevant common law rule. As Jaffey has emphasised, the interpretive work of common law judges is capable of refining the law on a case-by-case by replacing old rules with revised rules which may be founded on improved theoretical justifications for the body of previous decisions.65 The way in which a judge expresses a rule will reflect the judge’s theoretical justification for the judge’s decision on the facts. A subsequent court would, upon deciding that a different theoretical justification would provide a better account of legal practice overall and the decision’s place in the body of legal practice, be free—or even obliged—to restate the rule in terms of the superior theoretical justification. Accordingly, common law rules are bound to evolve over time.

61

ibid 21. See, eg, Equuscorp Pty Ltd v Haxton [2012] HCA 7 [124] (Heydon J). 63 Swain (n 44) 141. 64 See, eg, Trusts Act 1973 (Qld), s 22. 65 See above n 61 and accompanying text. 62

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Restatement legislation, on the other hand, preserves an understanding of legal rights and duties which existed at a particular moment in history.

III. The Disgorgement Theory Perpetuated? The Trusts Act 1994 is ostensibly restatement legislation. Moreover, an intention to codify the law of trusts is apparent from the attention which the legislation gives to foundational and uncontentious propositions of trusts law. Section 102 states that trusts may come into existence by oral declaration, instrument in writing or by conduct. Section 103 states that a trust ‘exists where a person … holds or has vested in him property … for the benefit of any person whether or not yet ascertained or in existence … [or] … for any purpose which is not for the benefit only of the trustee’. Section 106 states that beneficiaries may be ‘identifiable by name’ or ‘ascertainable by reference to’ a class of people or a relationship with a person. It was remarked in the previous section that restating an established common law rule in statutory form changes the nature of the guidance which the law gives. Guidance for conduct comes in the form of a verbal proposition which is to be understood as final. The proposition captures nothing more or nothing less than what is comprehended by its language. Therefore, a restatement which is premised upon a flawed theoretical justification for prior case law that is being restated has the effect of changing the law. The enactment of a final form of the rule closes off the possibility that a future court might refine the received version of the rule in the light of a better theoretical justification for the body of decisions in which the rule has been articulated and applied. The constructive trust contemplated by section 126(1) is activated by a person’s receipt of a ‘profit, gain or advantage’ from a breach of trust. As noted in the first section of this paper, this may occur where a trustee or another person acquires an asset which constitutes the traceable proceeds of trusts funds or where a trustee procures a gain through a breach of one of the proscriptive fiduciary duties. The provision comprehends the constructive trust in both cases as a disgorgement-oriented response to the trustee’s wrongful gain. We have seen that this is not the most straightforward explanation of the beneficiaries claim to assets, whether in the hands of either the trustee or third parties who are not bona fide purchasers for value without notice, that constitute the traceable proceeds of trust funds. The more straightforward explanation of requiring the trustee or third party to deliver up the asset to the beneficiaries is that the asset is a trust asset by virtue of being traceable proceeds of trust funds. Such a justification differentiates cases of misappropriation of trust assets from cases of breach of the proscriptive fiduciary obligations. In England and Wales, at least,66 the common law has made the shift from justifying the beneficiaries’ proprietary claim to the traceable proceeds of misappropriated trust assets in terms of disgorgement of a trustee’s ill-gotten gain to justifying it in terms of the persistence of the beneficiaries’

66 The reasoning in Foskett v McKeown was considered by the New South Wales Court of Appeal in Evans v European Bank Ltd (2004) 61 NSWLR 75, but Spigelman CJ (at 103) (Handley and Santow JJA agreeing) said that it was ‘unnecessary to consider the debate about whether or not tracing is “restitutionary”’.

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equitable ownership of the misappropriated assets in the substituted assets. A provision such as section 126(1) prevents a court from making that intellectual shift. Assets which have been substituted for misappropriated assets and are worth more than the misappropriated assets are to be understood as a ‘profit, gain or advantage’. A constructive trust imposed in respect of a gain acquired through a breach of fiduciary duty, on the other hand, is a mechanism for the disgorgement of a wrongfully acquired gain. Section 126 is activated by the trustee making a gain by way of a breach of a fiduciary duty, which is one of the species of duties comprehended by the phrase ‘breach of trust’. Nevertheless, section 126 enshrines some rather odd consequences in respect of wrongful gains. As previously mentioned, sub-section (3) provides that the constructive trustee shall always deliver up the asset. A constructive trust which reflects the rationale of fiduciary liability would identify and quantify the gain that has to be disgorged. The disgorgement could be achieved either by way of delivery up of the asset that constitutes the gain or payment of the monetary value of the gain.67 Instead, under section 126, disgorgement of the asset is an invariable feature of the constructive trust. Sub-section (2) provides that a constructive trust does not arise where the third party recipient of the asset is a bona fide purchaser for value without notice of the breach of trust. This means that a third party recipient will be liable to deliver up the asset where it has mere constructive notice of the breach of trust. Such an approach to the question of third party liability is sound where the claimant’s assertion is that the asset in the third party’s hands is the traceable product of an asset which was taken from the claimant, as in relation to an equitable proprietary claim of the Foskett v McKeown type.68 It does not make sense where the claimant’s assertion is that a third party who has participated in the trustee’s breach of its proscriptive fiduciary duties should be personally liable to account for any profit, gain or advantage which it has obtained as a result. Here, the claim ‘is against the person of the defendant’.69 Liability is ‘fault-based’.70 The third party is guilty of wrongdoing which ‘consists in exploiting the principal’s vulnerability that results from the fiduciary relationship’.71 The third party’s negligent failure to discover that the gain has been procured as a result of a trustee’s wrongful conduct does not justify making the third party personally liable to give up the value that was received. A higher level of moral culpability needs to be attributed to the third party.72 The narrow form of immunity from constructive trusteeship provided by the bona fide purchaser rule does not fit with the rationale for making a third party personally liable for breach of fiduciary duty—namely, that the third party bears moral responsibility for the breach of trust.

67

See above nn 28–29 and accompanying text. As Matthew Harding has stated, ‘Such a claim is to the property itself, rather than against the person of the defendant’: ‘Barnes v Addy Claims and the Indefeasibility of Torrens Title’ (2007) 31 Melbourne University Law Review 343, 356. 69 ibid 357. 70 P Ridge, ‘Constructive Trusts, Accessorial Liability and Judicial Discretion’ in E Bant and M Bryan (eds), Principles of Proprietary Remedies (Sydney, Lawbook Co, 2013) 73, 77. 71 ibid. 72 As far as Australian law is concerned, the best statement of the relevant level of culpability is that of Stephen J in Consul Development Pty Ltd v DPC Estates (1975) 132 CLR 373, 412. 68

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In summary, section 126 of the Trusts Act 1994 comprehends both equitable proprietary claims of misappropriated trust property and claims for profits obtained through breaches of fiduciary duty in terms of disgorgement of unjust enrichment through wrongdoing. The claim for disgorgement is, assuming that the defendant’s unjust enrichment can be located in particular assets, always proprietary in character. A person is immune from such a claim only if that person is a bona fide purchaser for value without notice. Section 126 confounds two juridically distinct claims, attributes a disgorgement rationale to both of them but then attaches consequences and provides for immunity on the basis that both claims are concerned with the vindication of property rights. Of course, a legislature possesses the power to redefine the bounds of private law claims and the consequences which follow from them, but that does not appear to be what was intended in section 126. Instead, section 126 adopts an inadequate theory of the constructive trust as the basis for a single remedy for a range of claims which have distinct juridical rationales. The result may have been a simplification of the law of the Marshall Islands, but that simplification has come at the expense of a pluralistic understanding of proprietary claims that sees a number of distinct justificatory structures at work in different situations. The loss is a loss of subtlety.

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Complex Systems and Interactions

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9 Fusing the Equitable Function in Private Law HENRY E SMITH

Is the fusion of law and equity a fact, a fallacy, or a fantasy? All can agree that the stakes are high in the fusion of law and equity, and that something happened between the days of separate equity jurisdiction and the present. Beyond that, however, the terrain is hotly contested. One conventional story has it that the old law and equity divide was a historical happenstance. There was nothing truly special about equity in a substantive sense, and so the whole point of fusion was to meld the two bodies of law into a seamless whole.1 And yet there are holdouts—those who see something as lost if equity is not kept separate in some fashion. Historically, there are those who have advocated for separate equity courts,2 and even these days some judges and commentators believe that fusion should be regarded as an administrative convenience.3 On this view, any mixing of the streams of law and equity is inherently illegitimate. The disagreement about fusion extends to the case law, resulting in some sharp judicial exchanges.4 Whether one takes one of these polar positions or one in between turns in part on one’s view about equity itself. Throughout the history of equity jurisdiction, controversy has raged over whether equity involved too much judicial discretion, and whether it undermined rather completed the common law—subversion rather than supplementation.5

1 See, eg, A Mason, ‘Fusion’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Lawbook Co, 2005) 11; A Burrows, ‘We Do This at Common Law but That in Equity’ (2002) 22 OJLS 1 (arguing that the law-versus-equity distinction is arbitrary, multiplies terminology and prevents desirable fusion). 2 See The Federalist No 83 (Alexander Hamilton); J Story, The Miscellaneous Writings of Joseph Story (Boston, Charles C Little and James Brown, 1852) 148, 169–79. 3 This brand of anti-fusionism is strongest in Australia. See generally P Perell, The Fusion of Law and Equity (Toronto, Butterworths, 1990); see also J Heydon, M Leeming and P Turner, Meagher, Gummow, and Lehane’s Equity, 5th edn (Chatswood NSW, LexisNexis Butterworths, 2015). 4 Compare United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (HL) 925 (Diplock J) (‘The waters of the confluent streams of law and equity have surely mingled now’) with GR Mailman & Assocs Pty Ltd v Wormald (Aust) Pty Ltd [1991] 24 NSWLR 80, 99 (Meagher J) (‘[In United Scientific Holdings v Burnley Borough Council] Lord Diplock … expressed the remarkable view that the [Judicature Act 1873] effected a “fusion” of law and equity so that equity as a distinct jurisprudence disappeared from English law. That view is so obviously erroneous as to be risible, and one may confidently anticipate that no Australian court will ever follow it in that regard.’). 5 See, eg, F Maitland, Equity: A Course of Lectures (A Chaytor and W Whittaker (eds), 2nd edn rev by Brunyate, 1949) 17 (‘[T]he first thing we have to observe is that [the relationship between law and equity] was not one of

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On this negative view, fusion is an unmitigated blessing. Fusion can defang the equitable monster. Ironically, those who are the biggest enthusiasts of judicial discretion can also find much to like in fusion. Antiformalists tend to see separate jurisdiction itself as empty formalism.6 And the perceived freedom of the equity judge to do justice can be extended over all of the law with the advent of fusion.7 It is no accident that fusion was completed in the United States during the era of Legal Realism, notably with the adoption in 1937 of the Federal Rules of Civil Procedure. Fusion is the occasion for equity to slip its bounds—to die and to triumph at the same time. Upon closer inspection, the debate between fusionists and anti-fusionists does not take place on the same plane. Fusionists are typically interested in function and see fusion as a way to enshrine the correct approach—whether formalist or contextualist, or conceivably in between—into a streamlined and unified law and legal system. Anti-fusionists seek to preserve something special about equity, and yet it is hard to convince the uninitiated to value what that is. Is equity a repository for conscience, and, if so, whose?8 It may well be that ‘Equity is not a set of rules but a state of mind’,9 as Lord Millett would have it. If so, how to answer those who see conscience and states of mind as too amorphous, too expansive, and too impenetrable to value for their own sake? This chapter will present a functionalist case for scepticism about substantive fusion. This may seem doubly contrarian or even perverse. After all, if there is one thing most people agree on, especially in the United States, it is that there really is no identifiable equitable function. Perhaps what equity courts did was valuable, but it is hard to argue that it can be explained with any specificity. Perhaps it is inherently unmeasurable—because it is too ethereal or because it does not exist. Not so fast. There is an equitable function. This function is not unrelated to separate equity jurisdiction, but it does not require separate courts. Equity in a functional sense

conflict. Equity had come not to destroy the law, but to fulfil it.’); S Subrin, ‘How Equity Conquered Common Law: The Federal Rules of Civil Procedure in Historical Perspective’ (1987) 135 University of Pennsylvania Law Review 909, 973–1000 (arguing that ‘Through the Federal Rules, equity had swallowed common law’). 6 See, eg, Burrows (n 1) 4–5 (‘[W]e as academics, judges, legislators and practitioners are simply not doing enough to eradicate the needless differences in terminology used, and the substantive inconsistencies, between common law and equity.’). 7 R Pound, ‘The End of Law as Developed in Legal Rules and Doctrines’ (1913) 27 Harvard Law Review 195, 226 (‘Equity sought to prevent the unconscientious exercise of rights; today we seek to prevent the anti-social exercise of rights.’) and ibid 227 (‘Equity imposed moral limitations. The law today is beginning to impose social limitations.’). See O Fiss, ‘The Supreme Court, 1978 Term—Foreword: The Forms of Justice’ (1979) 93 Harvard Law Review 1, 2 (‘The structural suit is one in which a judge, confronting a state bureaucracy over values of constitutional dimension, undertakes to restructure the organisation to eliminate a threat to those values posed by the present institutional arrangements. The injunction is the means by which these reconstructive directives are transmitted.’). But see Bisciglia v Kenosha 45 F3d 223, 228 (7th Cir, 1995) (denying temporary injunction in suit over employment termination and stating: ‘[T]his court does not possess a roving commission to do good. It must make a decision based upon the record and the law’ (citation omitted)); D Laycock, ‘The Triumph of Equity’ (1993) 56 Law and Contemporary Problems 53, 73 (denying ‘that a court of equity has a roving commission to do good once it identifies a threshold violation of law that justifies its intervention’). 8 I Samet, ‘What Conscience Can Do for Equity’ (2012) 3 Jurisprudence 13 (arguing that Kantian conscience can supply the standard for a distinct equity); P Turner, ‘“Mending Men’s Bargains” in Equity: Mortgage Redemption and Relief Against Forfeiture’ (2014) LQR 188 (analysing Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 20). 9 Lord Millett, ‘The Common Lawyer and the Equity Practitioner’ (2015) UK Supreme Court Yearbook 193.

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was not the exclusive preserve of equity judges—common law courts could be functionally equitable—and equity judges did more than dispense equity. So what is equity? I argue that equity is a limited second-order intervention to solve a class of problems characterised by both complexity and uncertainty. Legal decision-making takes place on several related levels. Within the law, rights and duties form a primary stratum of legal relations between legal actors. Powers and the like are second order, in that a power works a change in rights rather than the other way around: to formulate a power one needs to make reference to rights, but to formulate a right there is no need to refer to a power.10 The power is at a ‘meta’ level. In terms of common law decision-making, one could regard the generation of new ‘rules’ to be a higher-order part of the common law: common law rules operate on one level, and courts will sometimes will modify and create new rules. The similarity to legislation has often been remarked upon. What is special about the equitable function is that it is highly applied and fact-oriented, like the application of common law to facts, and yet it is, as I will argue, second-order like the quasi-legislative component of the common law. Indeed pre-fusion equity was a source of new common law rules. When is the second-order equitable function needed? Going back to Aristotle—often invoked by equity judges and commentators—we can start with the notion that equity intervenes into law where it fails owing to its generality.11 Why does the law fail for being general? Many answers have been offered, some of which—such as unfairness and changed circumstances—lead to a very expansive equity. The account I offer here and in related work,12 that of equity as a second-order safety valve, focuses on how the ‘regular’ part of the law, precisely because it aspires to be general, faces problems with hard-to-foresee problems that disturb the stable relationships between activities. To be general, the law has to assume that situations fall into probabilistically meaningful categories. To take an example, any system of liability that excuses violations of a right as de minimis or as in good faith has to face the possibility that informed actors can commit a violation that appears innocent but that is actually knowing and harmful. Signs that something is de minimis or in good faith can be mimicked by the opportunist. Or, to take another example, if damages in tort serve any deterrent function, many, especially in law and economics, take comfort from the idea that incentives will be correct if damages are calculated correctly on average: before the act, in expectation, the actor will face the cost of the harm that would otherwise be externalised.13 However, a clever actor, knowing how damages are measured, can cherry-pick rights to violate, such that the harm is systematically undervalued.14

10 See W Hohfeld, ‘Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1913) 23 Yale Law Journal 16, 44–58; Ugo Pagano, ‘Public Markets, Private Orderings and Public Governance’ (2000) 20 International Review of Law and Economics 453, 459–65; T Sichelman, ‘Quantifying Legal Entropy’ (May 22, 2013), San Diego Legal Studies Paper No 13-128, available at SSRN: http://ssrn.com/abstract=2293015. 11 Aristotle, The Nicomachean Ethics, J Ackrill and J Urmson (eds), trans D Ross (Oxford, Oxford University Press, rev edn, 1980). 12 H Smith, ‘Why Fiduciary Law Is Equitable’ in A Gold and P Miller (eds), Philosophical Foundations of Fiduciary Law (Oxford, Oxford University Press, 2014) 261–84; H Smith, ‘Equity as Second-Order Law: The Problem of Opportunism’ (January 15, 2015) (unpublished manuscript), http://ssrn.com/abstract=2617413. 13 L Kaplow and S Shavell, ‘Property Rules Versus Liability Rules: An Economic Analysis’ (1996) 109 Harvard Law Review 713, 725; A Polinsky and S Shavell, ‘Punitive Damages: An Economic Analysis’ (1998) 111 Harvard Law Review 869, 877–81. For a more thorough exposition of this theory, see S Shavell, Economic Analysis of Accident Law (Cambridge MA, Harvard University Press, 1987). 14 H Smith, ‘Property and Property Rules’ (2004) 79 New York University Law Review 1719, 1774–85.

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Law’s generality is thus vulnerable to what in institutional economics is termed ‘opportunism’ and what the equity lawyers of old called ‘constructive fraud’.15 Those who may (or may not) stay within the letter of the law by taking advantage of it to impose an unfair result on someone else are inherently difficult to deter with ex ante rules. It is hard to defeat opportunists who themselves exploit the system as a whole without going ex post and to a higher level to meet them on their own ground. Some measure of targeted discretion to defeat them can be more beneficial than it is costly in terms of destabilising the system. Although I will consider mainly equitable anti-opportunism, the theory here is about the class of problems that require second-order intervention. Other such problems include those that Lon Fuller termed polycentric and those involving conflicting rights.16 When a problem involves multiple parties interacting in highly dependent ways, it is difficult to deal with on its own terms: a component that can refer to and control the primary law makes sense—a law about law, a meta law. That is the equitable function, or so I argue. This chapter will first set forth the equitable function in section I. It will show how providing a limited, second-order safety valve was a large part of the business of equity courts and how separate equitable jurisdiction leads naturally to emphasising equity’s secondorder character, even though separate courts or even a distinct jurisdiction are not strictly necessary for such a second-order function. Section II will then show how fusion, particularly as implemented in the United States, has gone too far. In their fixation on substantive fusion, courts and commentators have partially effaced the second-order equitable function. Section III draws out some implications of identifying the equitable function and its partial submergence in fusion. These include the rise of standards and multi-factor balancing tests, the polarisation of courts and commentators into formalist and contextualist camps, and the flattening of the law of remedies. The chapter ends with some concluding thoughts on the place of equity within a legal system.

I. The Equitable Function The question of fusion makes little sense without some idea of what is being fused. For many, and for the most ardent pro-fusionists, there is nothing particularly special about equity from a substantive point of view. Something unspecial need not be kept distinct, either in separate courts or as a separate element of a legal system entrusted to a single set of courts. In contrast, for those who are sceptical or even opposed to fusion, arguments tend to be made ‘from within’ the system. Anti-fusionists appeal to tradition, or they rely on notions of conscience and states of mind that make sense to those already steeped in the world of equity. But such invocations of equity run the risk of preaching to the choir, and not making many converts. I argue that equity does have a distinct function. I thus give it an external justification. This is not meant to supplant an internal and interpretive perspective that elaborates equity

15

16

O Williamson, The Economic Institutions of Capitalism (New York, Free Press, 1985) 47. L Fuller, ‘The Forms and Limits of Adjudication’ (1978) 92 Harvard Law Review 353.

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doctrine from within. At a time of widespread uncertainty about equity’s status, though, a grounding of equity in distinct functional concerns would be a plus.17 As with other parts of the legal system, it is important to keep in mind the difference between the purpose of equity and how it serves that purpose. This is especially tricky when it comes to equity, because equity has more direct recourse to purposes than do other parts of the law. The ‘equity of the statute’ is a traditional form (much contested) of purposedriven statutory interpretation, and in general equity looks to the spirit rather than the letter of the law. It lends the system of the law a great deal of its openness. One useful definition of formalism is relative invariance to context.18 Thus, natural language—with pronoun reference and implied meaning—is less formal than computer languages. The language of everyday mathematics is less formal than that of published proofs. Systems generally need some external anchor, and equity is more outward looking—to morality, custom, common sense—than the regular more formal parts of the law. It is therefore only a starting point to identify the purpose of equity. We need also to explore how it works. The ‘how’ of equity used to depend on separate jurisdiction. Now that it cannot, we need a better theory of equity’s function. Let me first endorse a moderate view of equity’s purpose and then turn to a theory of the workings of equity. Many discussions of equity, both in the courts and the commentary, start with Aristotle’s definition of equity (epieikeia) as intervening into ‘law where law is defective because of its generality’.19 Law’s generality can cause problems for many reasons. The legislator may not have foreseen a particular problem or have failed to avoid ambiguity (‘no vehicles in the park’). Or someone may be trying to take unfair advantage of the law being, as Aristotle would have it, a ‘stickler in a bad way’.20 Opportunists are looking for weak points in the law to exploit, and plugging every loophole in advance is somewhere between impractical and impossible. As I have argued elsewhere, without some protection from something like equity, the general law on its own cannot serve the rule of law values of stability and certainty.21 Legal sources, and courts and commentators in particular, often relatedly invoke a stock formula for the domain of equity. Equity intervenes in cases of ‘fraud, accident, and

17

cf L Smith, ‘Fusion and Tradition’ in Degeling and Edelman (n 1) 19. Heylighen, ‘Advantages and Limitations of Formal Expression (1999) 4 Foundations of Science 25, 37; H Smith, ‘Property, Equity, and the Rule of Law’ in L Austin and D Klimchuk (eds) Private Law and the Rule of Law (Oxford, Oxford University Press, 2014) 224–46. 19 Aristotle (n 11) 133. See also, eg, Riggs v Palmer 22 NE 188, 189 (NY 1889) (quoting Aristotle on equity); E Zahnd, ‘The Application of Universal Laws to Particular Cases: A Defense of Equity in Aristotelianism and Anglo-American Law’ (1996) 59 Law and Contemporary Problems (documenting influence of Aristotelian equity on Anglo-American law) 263, 270–75; but cf D Shanske, ‘Four Theses: Preliminary to an Appeal to Equity’ (2005) 57 Stanford Law Review 2053 (arguing that Aristotle’s equity was not primarily legal). 20 Aristotle (n 11). See also D Klimchuck, ‘Equity and the Rule of Law’ in L Austin and D Klimchuk (eds), Private Law and the Rule of Law (Oxford, Oxford University Press, 2014) 247; D Klimchuk, ‘Is the Law of Equity Equitable in Aristotle’s Sense?’ 4 (June 2011) (unpublished manuscript) (on file with the author), www.law.ucla. edu/workshops-colloquia/Documents/Klimchuk.%20Is%20the%20Law%20of%20Equity%20Equitable%20 in%20Aristotles%20Sense.pdf (‘Correction is sometimes necessary because all law is universal and, owing to its universality, can lead to error in particular cases.’). 21 Smith (n 18). 18 F

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mistake’.22 Sometimes the triad emphasises confidence rather than mistake as in the poetic version attributed to Thomas More, the first lawyer to serve as Chancellor: ‘Three things are to be helpt in Conscience; Fraud, Accident and things of Confidence’.23 The theme is lack of foreseeability and surprise coupled with some element of potential deceit. In later sources, a catch-all for much of the domain of equity was ‘constructive fraud’. To take a famous American example, Justice Story emphasised ‘constructive fraud’ (what we would call opportunism) and the role of equity in defeating it: There is always fraud presumed or inferred from the circumstances or conditions of the parties contracting, weakness on one side, usury on the other, or extortion or advantage taken of that weakness. There has always been an appearance of fraud from the nature of the bargain, even if there be no proof of any circumvention, but merely from the intrinsic unconscionableness of the bargain.24

Story sees equity’s emphasis on constructive fraud, which takes up the bulk of his treatise, as a way of countering it.25 Indeed, he sees confidence as a core radiating out to ‘mistake, accident, and fraud’, summing up that: many cases of penalties and forfeitures; many cases of impending irreparable injuries, or meditated mischiefs; and many cases of oppressive proceedings, undue advantages and impositions, betrayals of confidence, and unconscionable bargains; in all of which Courts of Equity will interfere and grant redress; but which the Common Law takes no notice of, or silently disregards.26

Story gives qualified endorsement to Lord Cowper’s expansive language in Dudley v Dudley, sounding in anti-opportunism: Now equity is no part of the law, but a moral virtue, which qualifies, moderates, and reforms the rigour, hardness, and edge of the law, and is an universal truth; it does also assist the law where it is defective and weak in the constitution (which is the life of the law) and defends the law from crafty evasions, delusions, and new subtilties, invented and contrived to evade and delude the common 22 47 American Jurisprudence 2d ‘Judgments’ § 718, Westlaw (database updated Nov 2015) (‘Generally, claimants seeking equitable relief from judgments through independent actions must meet three requirements, [the third of which is that] they must establish a recognised ground, such as fraud, accident, or mistake, for the equitable relief ’) (footnotes omitted, citing cases); see also W Walsh, A Treatise on Mortgages (Chicago IL, Callaghan and Co, 1934) 6, 11 (relief from mortgages in equity on grounds of fraud, accident, or mistake); V Ricks, ‘American Mutual Mistake: Half-Civilian Mongrel, Consideration Reincarnate’ (1998) 58 Louisiana Law Review 663, 717, n 277 (speculating that Chief Justice Allen in Swift v Hawkins 1 Dall 17 (Pa 1768), ‘considered “mistake” to be representative of all categories of equity’). 23 1 Rolle’s Abridgement 374. See also Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 46 (Ch Div) (Megarry J) (quoting More’s couplet); A Laussat Jr, An Essay on Equity in Pennsylvania (Philadelphia, Robert Desilver, 1826) 67 (stating that ‘Sir Thomas More used to say that the following doggerel contained all the heads of chancery jurisdiction’). William Blackstone, more a fan of the common law than of equity, gets a little defensive in making the legitimate point that the triggers for equity were not ignored by the common law: W Blackstone, Commentaries on the Laws of England, 1st edn (Oxford, Clarendon Press, 1766) vol 3, 431. 24 J Story, Commentaries on Equity Jurisprudence: as Administered in England and America (Hillard, Gray & Co, Boston, 1836) § 334. 25 See R Clinton, ‘Classical Legal Naturalism and the Politics of John Marshall’s Constitutional Jurisprudence’ (2000) 33 John Marshall Law Review 935, 948 (discussing Carl Dibble’s identification of a ‘moderate Enlightenment’ tradition of legal interpretation associated with Grotius, Blackstone, and Marshall, that emphasised the role of equity and located the need for interpreting laws not in the ambiguity of language but in the possibility ‘that corrupt, duplicitous persons will “treat the law in a sophisticated manner” in order to advance their own individual interests’ (quoting C Dibble, ‘The Lost Tradition of Modern Legal Interpretation’ 5 (1994) (unpublished essay prepared for delivery at the 1994 Annual Meeting of the American Political Science Association))). 26 Story (n 24) § 29.

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law, whereby such as have undoubted right are made remediless; and this is the office of equity, to support and protect the common law from shifts and crafty contrivances against the justice of the law. Equity therefore does not destroy the law, nor create it, but assist it.27

Dudley itself was about opportunism and anti-evasion, in that the heir in that case tried to invoke a technicality that would delay a widow’s remedy on her dower rights for 99 years— which the chancery court prevented.28 Story ties equity’s open-ended nature to the need to deal with constructive fraud and the crafty evasions of opportunists. Quoting Lord Hardwicke, he notes that ‘Fraud is infinite’, given the ‘fertility of man’s invention’.29 As a result, equity cannot announce in advance all its particulars: Accident, mistake, and fraud, are of infinite variety in form, character, and circumstances; and are incapable of being adjusted by any single and uniform rule. Of each of them, one might say, Mille trahit varios adverso sole colores. The beautiful character, or pervading excellence, if one may so say, of Equity Jurisprudence is, that it varies its adjustments and proportions, so as to meet the very form and pressure of each particular case in all its complex habitudes.30

Equity needs to be ex post and tailored to the situation, because opportunism calls for that kind of response. Moreover, in Story’s view, the rise of industry and commerce increase the danger of opportunistic invocation of the letter of the law.31 This anti-opportunism version of equity lends a somewhat expansive gloss on traditional formulations of equity. As Chancellor Ellesmere put the point: ‘The Cause why there is a Chancery is, for that Mens Actions are so divers and infinite, That it is impossible to 27

Dudley v Dudley (1705) 24 ER 118, 119 (Ch), quoted in Story (n 24) § 17. Story hesitates to endorse the tight connection between equity and morality and sees this accordingly as a bit broad. On another interpretation, the type of morality being invoked here is not that broad—it is the kind of morality that protects the regular or formal law. This narrower version features in Justice Roujet Marshall’s opinion for the Wisconsin Supreme Court in Harrigan v Gilchrist 99 NW 909, 937 (emphasis added) (Wis 1904): 28

The text-writers disagree, in some respects, in the manner of stating this, but are in harmony in this: While new principles are not to be added to those long established for the government of equitable remedies, the rules, not the precedents, are to control. There is no vitality in precedents; there is in rules. They are susceptible of expansion along every line necessary to reach new conditions. The ingenuity of man in devising new forms of wrong cannot outstrip such development. In all situations and under all circumstances, whether new or old, the principles of equity will point the way to justice where legal remedies are infirm. Precedents will be a constant guide, but never a bar. Where a new condition exists, and legal remedies afforded are inadequate or none are afforded at all, the never–failing capacity of equity to adapt itself to all situations will be found equal to the case, extending old principles, if necessary, not adopting new ones, for that purpose. That is a very old doctrine. The opinion is 334 pages long and is described by his rival Chief Justice Winslow as a ‘compendium of legal lore’: ‘Roujet D. Marshall’ in T Gray (ed), Portraits of Justice: The Wisconsin Supreme Court’s First 150 Years (Madison WI, Wisconsin Historical Society Press, 2002) 26. 29 Story (n 24) 186 (quoting a letter from Lord Hardwicke to Lord Kames (30 June 1759)). 30 ibid § 439. Story is evidently quoting Virgil’s Aeneid, bk 5, line 89 (‘It gets a thousand various colours from the sun’, author’s translation), in a passage likening the surface of a snake (!) to a rainbow. 31 To this effect Story quotes from a Report by a committee he chaired on equity courts: These are a few of the numerous cases in which universal justice requires a more effectual remedy than the courts of common law can give. In proportion as our commerce and manufactures flourish and our population increases, subjects of this nature naturally accumulate; and, unless the legislature interpose, dishonest and obstinate men may evade the law and intrench themselves within its forms in security. Story, The Miscellaneous Writings of Joseph Story (n 2) 175 (emphasis added).

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make any general Law which may aptly meet with every particular Act, and not fail in some Circumstances’.32 Aristotle analogised equity’s tailored ex post nature to the leaden rulers of the builders of Lesbos, which could be fitted to individual stones in order to pick the exactly right one.33 Problems like opportunism point to a particular problem with the generality of law, and it calls for a particular type of second-order solution. We see, then, in the writings of Story and of others elucidating the nature of constructive fraud,34 the beginnings of a functional theory of equity as responding to a special kind of problem that is not handled well by the law. Because equity is a function rather than essentially jurisdictional, that function can sometimes be served by the common law courts. And indeed some of the most ardent defenders of the common law and opponents of equity jurisdiction courts could at times sound a functionally equitable note, as when Coke saw ‘discretion [as] a science or understanding to discern between falsity and truth, between wrong and right, between shadows and substance, between equity and colourable glosses and pretences, and not to do according to their wills and private affections’.35 Here again, discretion, often thought a hallmark of equity for good and for ill, is tied to something quite close to our notion of opportunism, which is often a matter of ‘colourable glosses and pretences’. The starting point for the functional theory of equity is to recognise that there is a special class of problems calling for a more ‘meta’ kind of solution than the law normally provides. Polycentric tasks, conflicting rights, and opportunism all involve great complexity and uncertainty.36 In systems theory they are problems associated with high variability. The question is what mechanism for control we need, and this can either be improvements to the system—better and more elaborate versions of the rules that give rise to the complex variable problem—or moving to a higher level.37 In the systems theory and cybernetic literatures, this is called hierarchy.38 Certain problems call for hierarchy because the cost of setting up a higher level, including the noise associated with a new higher-level set of devices, is worth incurring in light of the better handling of the complex variable problems.39 Consider opportunism in particular. What is opportunism? It is a term much disputed in economics, and notably Nobel laureate Oliver Williamson defines opportunism as ‘selfinterest seeking with guile’.40 This definition turns out to be too broad for our purposes, because to Williamson any rule-breaking is opportunism. And yet not all rule-breaking causes complexity and uncertainty calling for second-order solutions. Other definitions based on contravening the spirit of the law or defeating a counterparty’s legitimate

32

The Earl of Oxford’s Case (1615) 21 ER 485, 486 (Ch). Aristotle (n 11) 133. 34 L Sheridan, Fraud in Equity: A Study in English and Irish Law (London, Pitman & Sons, 1957). 35 Rooke’s Case (1597) 5 C Rep 99b, 100a; 77 ER 209, 210 (KB). 36 Examples of polycentric tasks might include violations of community custom or certain kinds of accounting (as opposed to compensatory damages), and conflicting potential rights often arise in nuisance. See Smith, ‘Equity as Second-Order Law’ (n 12). 37 See, eg, K Bertalanffy, General System Theory (New York, Braziller, 1968). See also J Holland, Hidden Order (Reading MA, Addison-Wesley, 1995) 11–12 (discussing second-order agents and properties). 38 See, eg, F Heylighen and C Joslyn, ‘Cybernetics and Second-Order Cybernetics’ in R Myers (ed), Encyclopedia of Physical Science & Technology, 3rd edn (San Diego, Academic Press, 2002). 39 See A Aulin-Ahmavaara, ‘The Law of Requisite Hierarchy’ (1979) 8 Kybernetes 259. 40 Williamson (n 15) 47. 33

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e xpectations are likewise potentially broad enough to go beyond any need for second-order solutions.41 Some of these definitions are nonetheless too narrow if they do not include situations where full-blown deception may not be present but someone is taking advantage of an unexpected change in conditions or a hard-to-discover loophole.42 Because of this feature, opportunism is hard to capture explicitly ex ante. Elsewhere I have defined opportunism as ‘behavior that is undesirable but that cannot be cost-effectively captured—defined, detected, and deterred—by explicit ex ante rulemaking … It often consists of behavior that is technically legal but is done with a view to securing unintended benefits from the system, and these benefits are usually smaller than the costs they impose on others’.43 The response needs to be ex post, and partially discretionary. It also needs to make reference to the law: the law is the vocabulary, the input, to the equitable function. Equity is higher order. This brings us to the nature of equitable devices. Equity is, in general, second order. This is potentially destabilising, absent severe limits on what one can do at the higher level. These limits are built into the proxies and presumptions that implement equity and are now only semi-familiar in American law. Turning first to the overall structure, the fact that equity courts usually and eventually won the battle with the common law courts can be seen as reflecting equity’s second-order aspect: equity can make reference to and alter a legal result (at least in effect), but not vice versa. Substantively, it has been noticed that law and equity are not on the same plane. Equity is ‘law about law’. I have characterised equity as a safety valve, and a safety valve has to be a safety valve on something else. As Maitland (no proponent of a special equitable function) put it, if equity had been abolished, ‘in some respects our law would have been barbarous, unjust, absurd’, but still ‘the great elementary rights against violence, to ownership, and so on, would have been enforced’. By contrast, abolishing common law would have meant ‘anarchy’, because ‘At every point equity presupposed the existence of common law’.44 In his famous formulation, ‘equity without common law would have been a castle in the air, an impossibility’.45 As a second-order intervention, equity is potentially a powerful tool. This power has always called forth detractors who see equity as too unconstrained. From the chancellor’s

41 See, eg, G Cohen, ‘The Negligence-Opportunism Tradeoff in Contract Law’ (1992) 20 Hofstra Law Review 941, 957 (defining ‘opportunism’ as ‘any contractual conduct by one party contrary to the other party’s reasonable expectations based on the parties’ agreement, contractual norms, or conventional morality’) (footnote omitted); T Muris, ‘Opportunistic Behavior and the Law of Contracts’ (1981) 65 Minnesota Law Review 521, 521 (defining ‘opportunism’ as conduct that is ‘contrary to the other party’s understanding of their contract, but not necessarily contrary to the agreement’s explicit terms’). See also, eg, S Buell, ‘Good Faith and Law Evasion’ (2011) 58 University of California Los Angeles Law Review 611, 623 (‘In common parlance, the evasive actor is one whose project is to get around the law. She seeks to avoid sanction while engaging, in substance, in the very sort of behavior that the law means to price or punish.’). For a wider definition, see, for example, R Posner, Economic Analysis of Law, 5th edn (New York, Aspen Law & Business, 1998) § 4.1, 103 (defining ‘opportunism’ in the contracting context as ‘trying to take advantage of the vulnerabilities created by the sequential character of the contract’). 42 There is a tendency to call any nefarious behaviour with an element of concealment ‘fraud’, which includes breach of trust and underground mining. See Livingston v Rawyards (1880) LR 5 App Cas 34 (quoted in Marengo Cave Co v Ross, 10 NE2d 917, 923 (Ind 1937)). 43 Smith, ‘Equity as Second-Order Law’ (n 12) 10–11. 44 Maitland (n 5) 19. 45 ibid.

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foot to fears of judicial overreach,46 the open-endedness of equity requires constraints on equity that are key to its viability. The second-order equitable element in the legal system can be treated as a safety valve, and we will see that traditional equity in large part acted in this fashion. As I discuss elsewhere, many of the central features of equity have the effect of deepening and narrowing it. To start with, ‘equity acts in personam’, which limits its reach to parties before the court. Importantly, equity does not alter entitlements with in rem effect.47 From the point of view of duty-bearers, the substantive and informational impact of in rem rights is heavier: more people are impacted, and their social distance from the transaction creating the right (or other legal relation) makes the informational burden greater.48 The hurdles to get into equity—notably the irreparable injury requirement—also have the effect of narrowing equity.49 The flip side of this is the required showing of inadequacy of the legal remedy. On the theory offered here, the question being asked is whether it really is necessary to leave the primary level and go to meta-law in order to solve a problem. Less obviously but crucially, many of the more substantive triggers and presumptions in equity serve to fashion it into a second-order safety valve. Equity involves rules of thumb, as expressed in maxims such as clean hands. It also provides for a flow chart of presumptions, which vary somewhat depending on the subject matter at hand. The triggers for presumptions are proxies for opportunism, and they sound in good or bad faith and disproportionate hardship. Take, for example, building encroachments. The law-and-economics literature treats problems of remedies in areas like nuisance and building encroachments as involving two settings: property rules that force duty bearers to get the consent of the entitlement holder, and liability rules that allow duty bearers to take the entitlement and pay an officially determined price.50 The literature is vast, but one point of agreement is that liability rules are appropriate in situations of high transaction costs in markets, such as with bilateral monopolies, holdouts, and free riders.51 Hence the supposed trend towards giving damages in building encroachment cases. 46 See J Baker, An Introduction to English Legal History, 3rd edn (London, Butterworths, 1990). The most famous critique of equity is Selden’s:

Equity is a Roguish thing: for law we have a measure, know what to trust to; Equity is according to the Conscience of him that is Chancellor, and as that is larger or narrower, so is Equity. ‘Tis all one as if they should make the Standard for the measure we call a Foot, a Chancellor’s Foot; what an uncertain Measure would be this. One Chancellor has a long Foot, another a short Foot, a Third an indifferent Foot: ‘Tis the same thing in the Chancellor’s Conscience. John Selden, ‘Equity’ in Table-Talk: Being the Discourses of John Selden, Esq, 2nd edn (London, J M Dent & Co, 1689) 43, 43–44. 47 See C Gray, ‘The Boundaries of the Equitable Function’ (1976) 20 American Journal of Legal History 192, 202–06 (illustrating how courts of equity were prohibited from addressing real estate disputes). 48 See T Merrill and H Smith, ‘Optimal Standardization in the Law of Property: The Numerus Clausus Principle’ (2000) 110 Yale Law Journal 1, 4, 33; T Merrill and H Smith, ‘The Property/Contract Interface’ (2001) 101 Columbia Law Review 773; H Smith, ‘The Language of Property: Form, Context, and Audience’ (2003) 55 Stanford Law Review 1105. 49 D Laycock, The Death of the Irreparable Injury Rule (New York, Oxford University Press, 1991); Smith, ‘Equity as Second-Order Law’ (n 12); but see D Laycock, ‘The Death of the Irreparable Injury Rule’ (1990) 103 Harvard Law Review 687, 688–701. 50 G Calabresi and D Melamed, ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’ (1972) 85 Harvard Law Review 1089. 51 See, eg, I Ayres, Optional Law: The Structure of Legal Entitlements (Chicago IL, University of Chicago Press, 2005); I Ayres and E Talley, ‘Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade’ (1995) 104 Yale Law Journal 1027; Kaplow and Shavell (n 13).

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The traditional equitable approach to building encroachments was a more sophisticated second-order safety valve.52 The basic baseline theoretically is that equity will not enjoin a mere trespass. Nevertheless, for repeated and continuing trespasses the presumption is for issuing an injunction, and this presumption covers building encroachments, which are certainly continuing trespasses. Of course, ordering a building to be torn down is wasteful, but the traditional equitable test was not directly about waste. In a targeted fashion, equity provides a defence of disproportionate (or undue) hardship: if the injunction would harm the encroacher far more than it would benefit the movant (especially if the encroachment is slight), then a court may deny the injunction and give only damages.53 However, if the encroachment was not in good faith—if the encroaching party had notice of the violation before engaging in it—the defence of disproportionate hardship does not apply, and the injunction will issue. This mechanism is designed to deal with potential opportunism on both sides—the opportunism of the rights violator and the ex post exploitation of holdout power by the landowner. As argued below, this approach to injunctions, using shifting presumptions based on proxies for opportunism, handles the remedial problem here in a potentially better—in a more tailored and less destabilising way—than do more ‘modern’ approaches in the case law or commentary. The equitable function is not limited to torts and property. A prototypical category of traditional constructive fraud was contractual unconscionability. Unconscionability involves the taking of advantage, especially of the vulnerable. Interestingly, theories of unconscionability offered by Arthur Leff and Richard Epstein track traditional equity and are targeted at what I am calling opportunism.54 Their version of unconscionability can be regarded as a special case of constructive fraud,55 and their theories are instances of the equitable function. As in other contexts, unconscionability employs proxies based on disproportionate hardship and bad faith to shift the presumption against the possible opportunist; more particularly, certain classes of people, such as the very young and very old, sailors on leave, and so on, will more easily raise the presumption of opportunism.56 To carry out the equitable function in contracts, it makes sense for a court to go one level up, to meet the opportunists who take a comprehensive view of the situation. Indeed, unconscionability and equity are needed most where one party is ill-informed or otherwise vulnerable. Even for sophisticated parties, the reluctance to allow parties to bargain out of the contractual duty of good faith altogether may be rooted in a sense that even in contexts of apparent availability of information, one party may have found an unanticipated avenue of advantage-taking. Moreover, as Epstein analogises unconscionability to the statute of frauds,57 the question we need to ask is whether there is a category of transactions that is

52

Smith, ‘Equity as Second-Order Law’ (n 12). D Laycock, ‘The Neglected Defense of Undue Hardship (and the Doctrinal Train Wreck in Boomer v Atlantic Cement)’ (2011) 4 Journal of Tort Law Art 3. 54 A Leff, ‘Unconscionability and the Code—The Emperor’s New Clause’ (1967) 115 University of Pennsylvania Law Review 485, 539; R Epstein, Unconscionability: A Critical Reappraisal’ (1975) 18 Journal of Law & Economics 293, 293–301; see also H Smith, ‘The Equitable Dimension of Contract’ (2012) 45 Suffolk University Law Review 897, 902–07. 55 Story (n 24) § 221. 56 Leff (n 54) 532. 57 Epstein (n 54) 302. 53

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so fraught with near-fraud that it is worthwhile not enforcing such bargains despite the few beneficial deals that may be swept in the net. One virtue of the traditional set of proxies and presumptions in a second-order safety valve is its modular quality. In general, modularity is an important tool for managing complexity in systems.58 By dividing a set of interactions into components—modules—that can interact only in certain ways across interfaces, the system can be modified and understood much more cost-effectively. Activity including innovation can occur in one module or a few modules without destabilising ripple effects throughout the system. Think of the brakes and the ignition system of a car. Each can operate and be modified without worrying too much about the other. In private law, information is managed through modularity—not just in property, but tort, and contract as well.59 Equity’s safety valve is modular. The combination of domain-defining rules (in personam, irreparably injury) and the flowchart of proxies and presumptions allow equity to operate in greater isolation and with less destabilising effect than it would otherwise. There are many situations in which equity is simply not relevant, and that can be known ex ante. By intervening at a second level, equity allows the law to be more general than it would be otherwise. The alternative to protecting the law against evasion through equity is to either allow the evasion or to make the law very complicated and specific ex ante. Allowing evasion can bring the law into disrepute.60 And trying to head off every possible avenue of evasion is difficult without making the law either very complex or very blunt (with extreme prophylaxis). And most legal actors do not need to be policed with equitable interventions most of the time, and, unlike the opportunists, find the moral tone of equity reassuring.61 Moreover, such a version of the law is likely to be very rigid and fail to remain responsive to change in background conditions. The very generality and simplicity that serve rule of law values may even be harder to implement without the backstop of equity. As is generally the case with modularity, some functional (if not jurisdictional) separation of regular law and equity can allow for specialisation. The law can achieve generality, simplicity, publicity and the like, while equity targets its intervention against opportunism in a deep and thorough fashion. Equity’s intervention can go further where it applies, because it does need not be generalised across the board. If one regards the equitable function as that of a second-order safety valve to deal with complex and uncertainty-ridden problems like opportunism, that does not mean one can square the circle. Equity does involve judicial discretion and it does have some destabilising effect. Instead, the account being offered allows us to state the trade-off in equity in a

58 See, eg, C Baldwin and K Clark, Design Rules: The Power of Modularity (Cambridge MA, MIT Press, 2000); R Garud, A Kumaraswamy and R Langlois (eds), Managing in the Modular Age: Architectures, Networks and Organizations (Malden MA, Blackwell, 2002); H Simon, The Sciences of the Artificial, 2nd edn (Cambridge MA, MIT Press, 1981) 195–200; R Langlois, ‘Modularity in Technology and Organization’ (2002) 49 Journal of Economic Behavior & Organization 19; R Sanchez and J Mahoney, ‘Modularity, Flexibility, and Knowledge Management in Product and Organization Design’ (1996) 17 Strategic Management Journal 63. 59 H Smith, ‘Property as the Law of Things’ (2012) 125 Harvard Law Review 1691. See also H Smith, ‘Modularity and Morality in the Law of Torts’ (2011) 4 Journal of Tort Law Art 5; H Smith, ‘Modularity in Contracts: Boilerplate and Information Flow’ (2006) 104 Michigan Law Review 1175. 60 M Harding, ‘Equity and the Rule of Law’ (2016) 132 LQR 278. 61 Y Feldman and H Smith, ‘Behavioral Equity’ (2014) 170 Journal of Institutional and Theoretical Economics 137.

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precise form that draws on a well-developed framework of systems theory. Do the benefits from specialisation at two levels—greater generality at the primary level and greater targeting of contextual intervention at the second level—exceed the costs of setting up a second level and the costs of the targeting of equity’s contextualised intervention? This also helps explain what courts have traditionally done. Although the equitable function was not exclusive to equity courts, and was not absent from common law courts, the structure of the traditional doctrine can be explained and justified in terms of equity as a second-order safety valve. In separate work, I survey equity from this point of view.62 Here I wish to focus on what fusion risks giving up—and has to an alarming degree already done so in the United States—in the rush to deny any special differentiated role for equity in the legal system as a whole.

II. Carrying Fusion Too Far There are many ways to carry out fusion. Some of them are extreme enough that the function of equity as a second-order safety valve is put in peril. That, I argue, is exactly what has happened in the United States, and it is a tendency in other jurisdictions as well. Separate equity jurisdiction is perhaps sufficient (or at least helpful) for keeping the safety valve function of equity robust.63 It is certainly not necessary. Civilian legal systems largely did without separate equity courts, and yet doctrines like of abuse of right and abuse of law serve a similar second-order safety valve function. They are directed at opportunists, and the same concern with evasion and ‘fraud on the law’ pops up all over in this part of the civil law.64 Some of the same proxies relating to good faith and disproportionate hardship feature strongly in abuse of law in the civil law as well. To be sure, as in post-fusion common law jurisdictions, there is a tendency for some of these doctrines to expand beyond the function of a second-order safety valve. Nevertheless, it is possible to maintain a separate second-order element of a system that is jurisdictionally unified. Such could be the case in the United States, but fusion has typically been pushed further and in a non-reflective fashion. The fusion of law and equity happened over a period extending from the mid-nineteenth to the early mid-twentieth century.65 The conventional 62

Smith, ‘Equity as Second-Order Law’ (n 12). highlighting equity’s distinct role, separate equity courts can afford consistency among equitable decision-makers and might lessen the tendency to stretch equity in the course of regular legal decision-making. How much scope to give the equitable function, whether in one court or two, will also depend on the degree of background consensus on matters like commercial morality and judicial decision-making, which is likely to be less now than in the era prior to fusion: ibid. 64 Contra legem facit qui id facit quod lex prohibit; in fraudem vero qui salvis verbis sententiam eius cicumvenit (D. 1.3.29, Paul) (‘The one who does what the law prohibits acts against the law; but the one who keeping to its terms gets around its spirit acts in fraud of the law’); see also D. 1.3.30; WW Buckland, Equity in Roman Law (London, University of London Press, 1911) 112–14; H Desbois, La Notion de Fraude à la Loi et la Jurisprudence Française (Paris, Dalloz, 1927); O Heeder, Fraus legis (Frankfurt am Main, Lang, 1998). 65 For the United States, see Federal Rules of Civil Procedure (1938); New York Code of Procedure of 1848, NY Laws ch 379 (Field Code); R Kharas, ‘A Century of Law-Equity Merger in New York’ (1949) 1 Syracuse Law Review 186. For England, see Supreme Court of Judicature Act 1873, 36 & 37 Vict, c 66; Supreme Court of Judicature Act 1875, 38 & 39 Vict, c 77; Baker (n 46) 108–09; S Waddams, ‘Equity in English Contract Law: The Impact of the Judicature Acts (1873-75)’ (2012) 33 Journal of Legal History 185. 63 Besides

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story has it that during this time a ‘Grand Style’ of moralism and policy-making judging was replaced by legal science and formalism, which was supplanted by waves of progressivism and Legal Realism.66 From the earliest days of the Field Code to the Legal Realist era, fusion was presented as an unalloyed good. The more fusion, the better. Fusion was regarded as almost a panacea for the problems of the justice system.67 Impatience with the (supposedly) slow pace of fusion in the courts was palpable among commentators, with Charles Clark going so far as to claim that ‘In fact it is unfortunate to continue to speak of law and equity, since that naturally tends to preserve old distinctions. The former principles of equity jurisprudence are now a part of our one body of applicable legal rules’.68 Legal Realists believed in drawing upon equity to give their policy-oriented, judicially driven reform some historical pedigree. This openness to equity did not extend to seeing a function to equity separable from the rest of the law. Some saw in the rising administrative state the new equity that would reform the law.69 Law schools took equity out of the curriculum during this time. It was thought anachronistic to keep a separate equity course, and the material in such a course could be blended into various substantive courses. It is not atypical of this era when all Laswell and MacDougal can say of equity is: ‘What useful purpose is served by putting this rag-bag of stuff between two covers?’70 Like restitution, substantive equity was folded into the course on Remedies and then that course fell out of fashion, dealing equity a second death in the curriculum.71 Even with some revival of the Remedies class of late, the leading casebook, by Douglas Laycock, is not organised around the old jurisdictional divide, in favour of a more modern and (supposedly) more functional organisation around concepts like ‘in kind’ versus ‘compensatory’ remedies.72 I will turn to some implications of fusion in section III, but the conventional wisdom in our post-fusion era is that law and equity have been fused procedurally and equity won.73

66 See, eg, G Gilmore, The Ages of American Law (New Haven CT, Yale University Press, 1977); M Horwitz, The Transformation of American Law, 1870–1960: The Crisis of Legal Orthodoxy (New York, Oxford University Press, 1992); D Kennedy, ‘Form and Substance in Private Law Adjudication’ (1976) 89 Harvard Law Review 1685, 1725–40. 67 See, eg, E Taylor, ‘The Fusion of Law and Equity’ (1917) 66 University of Pennsylvania Law Review 17, 17 (‘In the fusion of law and equity lies, in the opinion of the writer, the one great object to be achieved, if we would reach anything like a true reformation of the evils of the present administration of justice’.); C McCormick, ‘The Fusion of Law and Equity in United States Courts’ (1927) 6 North Carolina Law Review 283, 285 (‘Any separation of the stream of equity from the main channel of legal administration is today seen to be unjustifiable as an administrative device and explainable only as a historical survival from an era of multitudinous separate courts. [P] The desirability of reforming the practice in Federal Courts by abolishing the formal distinctions between proceedings at law and in equity, in harmony with the modern practice in England and most of the States, seems too clear for argument’.). 68 C Clark, ‘The Union of Law and Equity’ (1925) 25 Columbia Law Review 1, 5. 69 H Smith, ‘Equity and Administrative Behavior’ in P Turner (ed), Equity and Administration (Cambridge, Cambridge University Press, 2016). 70 H Lasswell and M McDougal, ‘Legal Education and Public Policy: Professional Training in the Public Interest’ (1943) 52 Yale Law Journal 203, 255. 71 See L Orfield, ‘The Place of Equity in the Law School Curriculum’ (1949) 2 Journal of Legal Education 26. 72 D Laycock, Modern American Remedies: Cases and Materials, 4th edn (New York, Aspen, 2010). 73 Laycock (n 7) 53 (‘The distinctive traditions of equity now pervade the legal system. The war between law and equity is over. Equity won.’).

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In terms of substance, there is agreement that there are vestiges of equity here and there, but they are unjustified and are largely perpetuated out of inertia and the need to keep track of legal versus equitable issues for purposes of the right to a jury trial (where jury trial has not been extended to all claims legal or equitable).74

III. Implications Fusion has been taken far, but is not complete. I argue that some characteristic contours of fusion in the United States stem from effacing equity as a second-order safety valve, and that this made fusion less successful than it should be. Some of the aftermath of fusion is, as noted earlier, a Realist-inspired removal of the constraints on equity. Also, to the extent that the Realists and their successors saw the administrative state as dispensing the ‘new equity’, the action shifts from courts to agencies and the political and judicial control (or not) of those agencies. In both the administrative arena and in the case law since the Realist era, one can discern an expansionist strand of equity as an all-purpose fix-it for problems arising in the legal system. In the early days of Realism, invocations of the ‘equity of the statute’ were popular, as were implications of equity as a response to change, in this case social and economic change.75 So part of the aftermath of fusion is a greater tolerance for discretion. There is nothing particularly structural or bi-level about this version of equity. There is nothing stopping us from implementing vague ex post standards at the primary level of regular law, and to some extent that is what has happened. Think unconscionability. If it is an all-things-considered fairness review—as it may be in some courts and not others—then one can say the bi-level structure has been flattening and equity expanded at the primary level. This triumph (if that is what it is) of equity is mirrored by the adoption of equity procedures (discovery, interpleader, class actions) over the more rigid ones of the common law.76 It also reflects fusion statutes apparently directing courts to apply the equitable rule when law and equity conflict. This expansion of substantive standards is, however, something very different from the structural second-order safety valve identified here as an equitable function, and reflected in part in traditional equity. There is more to the story than ever-expanding standards. Courts are still responsive to the considerations of the rule of law, or at least their appearance, and have had to contend in more recent decades with a backlash against unbounded judicial discretion. In this section, I diagnose how some of the discontents in current American private law stem from our

74 See F James Jr , ‘Right to A Jury Trial in Civil Actions’ (1963) 72 Yale Law Journal 655, 663 (‘Under a merged procedure, few if any of the differences between law and equity continue to have any vitality, except the question of mode of trial.’); Laycock, ‘The Death of the Irreparable Injury Rule’ (n 49) 696 and n 39 (presenting equitable relief as a tool to ‘manipulate jurisdiction or avoid jury trial’) and 757–60 (same). 75 See sources cited above n 7. 76 P McMahon, ‘The Fusion Fallacy Revisited: A Purposive Approach to the Fusion of Law and Equity Under the Judicature Acts, 1873–1875’ (30 Sept 2015) (unpublished manuscript) (on file with the author).

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misguided approach to the fusion of law and equity.77 Three principal aftershocks of fusion are the proliferation of standards and multifactor tests, the polarisation of formalism and contextualism, and the flattening of the law of remedies.

A. Multi-Factor Balancing Tests Few things are as notorious as the multi-factor test, especially the multi-factor ‘balancing’ test. It is easy to roll one’s eyes about them, but they are very hard for courts to resist. If one does not want to take a ‘tough luck’ approach to what Carol Rose calls ‘crystals’,78 and yet one wants to provide some guidance to judicial decision makers, the multi-factor test is a typical result. Even if they do not constrain judicial decision-makers, they at least give the appearance of something more constrained than total discretion. Let me advance the hypothesis that much of substantive equity was replaced by multifactor tests and standards because when it comes to the equitable function, that is the closest mono-level substitute for a second-order safety valve. Although I do not argue that multi-factor balancing tests are never justified, the general sense that they have proliferated too far dovetails with an account of equity as a historical and functional substitute. Examples of multi-factor balancing tests are legion, and their virtue is their flexibility. This is sometimes termed ‘equitable’ in the sense of tailored and flexible—like Aristotle’s leaden rulers of the builders of Lesbos.79 Thus, in a well-known example, courts have gravitated toward a multi-factor balancing test for lawyer liability to third parties for malpractice, to replace the older privity rules,80 with the California Supreme Court treating the question of potential liability as ‘a matter of policy and involv[ing] the balancing of various factors, among which are ‘the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury, and the policy of preventing future harm’,81 as well as ‘whether the recognition of liability to beneficiaries of wills negligently drawn by attorneys would impose an undue burden on the profession’.82 The traditional approach would be to apply privity as a legal matter but look beyond the formal privity in cases of unclean hands and constructive fraud.83 77 The implications of fusion in jurisdictions without a tradition of Realism tend to combine standards with finely tuned complex doctrine. See J Getzler, ‘Patterns of Fusion’ in P Birks (ed), The Classification of Obligations (Oxford, Clarendon Press, 1997) 157, 192–93. 78 For Rose, ‘crystals’ are the ‘hard-edged doctrines that tell everyone exactly where they stand’ that are especially prevalent in the common law of property: C Rose, ‘Crystals and Mud in Property Law’ (1988) 40 Stanford Law Review 577, 577. 79 See above n 33 and accompanying text. 80 See T Bell, ‘Limits on the Privity and Assignment of Legal Malpractice Claims’ (1992) 59 University of Chicago Law Review 1533 (discussing the expansive trend of lowering the privity bar and arguing that privity should be relaxed only ‘when equity demands’, ibid 1548); L Curtis, ‘Changing Standards of Third-Party Liability in Estate Planning’ (1998) 66 University of Missouri Kansas City Law Review 863, 864–65 (noting the trend since the 1970s toward multi-factor balancing tests for attorney third-party liability and arguing this provides for more ‘equitable’ results). 81 Lucas v Hamm 364 P2d 685, 687 (Cal 1961) (in bank). 82 ibid 688. 83 See, eg, National Savings Bank of DC v Ward 100 US 195, 205 (1879) (‘Where there is fraud or collusion, [an attorney] will be held liable, even though there is no privity of contract; but where there is neither fraud or collusion nor privity of contract, the [attorney] will not be held liable.’).

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Often the balancing approach takes the form of new tort liability based on standards in place of an older equitable device like the constructive trust in restitution. John Goldberg and Robert Sitkoff argue that the new tort adopted in some states of interference with inheritance is a poor substitute for older approaches sounding in restitution and equity.84 Goldberg and Sitkoff note that William Prosser, an early proponent of the new tort, recharacterised equity cases resting on constructive trust to prevent unjust enrichment as de facto tort decisions.85 Goldberg and Sitkoff locate the problem in a Legal Realist vision of torts: that … drains tort law of its doctrinal structure and content, leaving only an open-ended license for courts to shift losses and mete out punishment. On this view, a tort plaintiff need only prove a loss or a setback owing to the defendant’s antisocial conduct. Core concepts that have historically defined tortious conduct—such as duty, breach of duty, proximate cause, and injury—are reduced to empty labels. Tort is converted into the ‘chancellor’s foot’ caricature of old equity. It becomes an unstructured loss-shifting apparatus that has the potential to swallow better-defined fields of law, in this instance probate and restitution.86

Not all multi-factor tests are balancing tests. Sometimes courts strive mightily to capture what was once equitable with ex ante rules, but these tend to be complex multi-prong tests. The evolution of hot new misappropriation provides a high-profile example. In the leading case and fountainhead for modern misappropriation doctrine, International News Service v Associated Press,87 the US Supreme Court held that one news service engaged in misappropriation by using the other’s ‘hot news’. Although this case is taken as being about property rights in news, the Court itself went to great pains to emphasise that the case was brought in equity and that the decision was an equitable one: ‘The transaction speaks for itself and a court of equity ought not to hesitate long in characterising it as unfair competition in business’.88 In the course of the majority opinion, the Court repeatedly makes reference to equity.89 The reasoning of the Court sounds in desert for labour and the need for an incentive to gather news, and the result is a ‘quasi-property’ right in the news not availing against others generally (which would be in rem) but only those in direct competition. In his dissent, Justice Brandeis hits a number of cautionary themes and argues for a baseline of information being ‘free as the air to common use’.90 Later, the Second Circuit, especially speaking through Judge Learned Hand, cut back the implications of this doctrine to the narrow context of hot news,91 a remarkable feat for a lower court. The fusion of law and equity has had unfortunate effects on misappropriation doctrine.92 First, the equitable aspect of the opinion and the doctrine has largely been lost, which means

84 J Goldberg and R Sitkoff, ‘Torts and Estates: Remedying Wrongful Interference with Inheritance’ (2013) 65 Stanford Law Review 335. 85 ibid 360–61. 86 ibid 392 (citation omitted). Goldberg and Sitkoff cite Grant Gilmore’s Death of Contract, which argued that tort swallowed contract. Notice that the supposed vehicles for doing so—promissory estoppel and unconscionability—trace back to equity. 87 International News Service v Associated Press 248 US 215 (1918) (‘INS’). 88 ibid 240. 89 ibid 237–38 and 240 (twice). 90 ibid 250 (Brandeis J dissenting). 91 See, eg, Cheney Bros v Doris Silk Corp 35 F2d 279 (2d Cir 1929) (Hand J). 92 H Smith, ‘Equitable Intellectual Property: What’s Wrong With Misappropriation?’ in S Balganesh (ed), Intellectual Property and the Common Law (Cambridge, Cambridge University Press, 2013) 42.

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that some of the sources and limitations are lost as well. The original equitable doctrine is not as expansive as some might fear.93 Second, and relatedly, the case is not really about property rights: equity was not supposed to declare in rem rights and the Court did not do so in INS. Third, once the doctrine is not equitable, the two-tier structure and safety valve nature of equity have to be replaced by something. In this case, the best replacement to date has been the Second Circuit’s influential restatement of the law of misappropriation in Judge Winter’s opinion in National Basketball Association v Motorola.94 The opinion seeks to capture hot news misappropriation in a five-prong test: (i) a plaintiff generates or collects information at some cost or expense; (ii) the value of the information is highly time-sensitive; (iii) the defendant’s use of the information constitutes free-riding on the plaintiff ’s costly efforts to generate or collect it; (iv) the defendant’s use of the information is in direct competition with a product or service offered by the plaintiff; (v) the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.95

As we will see with injunctions, courts try to put some structure into what appears unstructured now that equity as a safety valve is no longer familiar.96 For something as open-ended and closely tied to commercial morality as misappropriation, the NBA v Motorola test may be the best that can be done, as a mono-level legal test. Nevertheless, the original equitable approach, I have argued, is more apt for situations of opportunism, and misappropriation is indeed about both ethics and efficiency.97 As mentioned earlier, opportunism is not the only problem calling for a second-order equitable intervention. Situations of conflicting rights also can be amenable to resolution at a higher level. Indeed, traditional nuisance law took such an approach, with courts deciding nuisance cases on the basis of invasion (mini-trespass) shading off into a complex

93 Equitable features—notably its action in personam, not in rem—limit the operation of the misappropriation doctrine more than its critics admit. See H Hanbury and R Harling Maudsley, Modern Equity 10th edn (London, Stevens, 1976) 15 (‘The key to understanding the nature of equitable remedies is the appreciation of the importance of the maxim that “Equity acts in personam.” This has been the basis of the jurisdiction from the earliest days; and is so today.’); see also Gray (n 47) (offering a historical account of equity’s refusal to create property rights). The INS Court hinted at this restriction when it emphasised that ‘a court of equity concerns itself only in the protection of property rights’, not in their creation: (n 87) 236. By acknowledging that misappropriation gives rise only to quasi-property whose duty-holders were those in direct competition, the Court cabined the class of people affected by its intervention to AP’s competitors, who opportunistically manipulated an existing, customary framework of private rights. See Smith (n 92) 57–62. 94 National Basketball Association v Motorola 105 F3d 841 (2d Cir 1997) (‘NBA’). This is true also if, as the Second Circuit suggested recently, the formulation in NBA is a set of ‘sophisticated observations in aid’ of an analysis of pre-emption: Barclays Capital Inc v Theflyonthewall.com Inc 650 F3d 876, 901 (2d Cir 2011); but see ibid 911 (Raggi J concurring) (arguing that the five-part test was necessary to the result in NBA). One could say that the statement in the majority opinion in Barclay’s itself was dictum. See S Balganesh, ‘The Uncertain Future of “Hot News” Misappropriation after Barclays Capital v. theflyonthewall.com’ (2012) 112 Columbia Law Review Sidebar 134. 95 ibid 852 (citations omitted). 96 The ahistorical and misleading four-factor test for injunctions recently adopted by the Supreme Court is the most recent example: eBay v MercExchange 547 US 388, 390 (2006) (‘eBay’). See M Gergen, J Golden and H Smith, ‘The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions’ (2012) 112 Columbia Law Review 203. 97 The NBA opinion is fusionist in disavowing ethics and speaking about property rater than quasi-property: ‘INS is not about ethics; it is about the protection of property rights in time-sensitive information so that the information will be made available to the public by profit seeking entrepreneurs.’: NBA (n 94) 853. The court may have meant ‘property rights’ in an economic sense.

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r econciliation of conflicting use rights.98 For example, in Campbell v Seaman,99 a decision enjoining the sulphuric fumes from a brick-making works, the court invokes the locality rule, shutdown costs, uniqueness of the location, irreparable injury, a threatened multiplicity of suits, and (absence of) disproportionate hardship. The analysis is quite ‘meta’ and sophisticated, much more so than the more recent Boomer v Atlantic Cement,100 which appears to endorse damages instead of injunctions when the plaintiffs are numerous, a flat single-level decision if there ever was one.101 Nuisance these days is in flux, and as with other echoes of equity, the multi-factor balancing test looms large in theory if not exactly in practice. Notably the Restatements, especially the Second Torts Restatement, have advocated balancing tests for nuisance.102 Under the Second Restatement, a nuisance is a substantial non-trespassory interference with the use and enjoyment of land that is caused either by intentional and unreasonable activities, or negligent, reckless, or ultra-hazardous activities. As is often the case, the key to intentional nuisances largely turns on reasonableness: An intentional invasion of another’s interest in the use and enjoyment of land is unreasonable if (a) the gravity of the harm outweighs the utility of the actor’s conduct, or (b) the harm caused by the conduct is serious and the financial burden of compensating for this and similar harm to others would not make the continuation of the conduct not feasible.103

Restatements are known for multi-factor balancing tests as well as standards as opposed to rules.104 The fusion of law and equity may well have furnished a lot of the material for these tests. Pushing fusion to the point of erasing its second-order function does not cause the problems calling for second-order solutions to simply vanish. Instead, they still need solving, and all that’s left are solutions at the same level as the problem. Standards and multi-factor tests are among the main avenues remaining, once equity in the safety valve sense has been fused out of existence.

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H Smith, ‘Exclusion and Property Rules in the Law of Nuisance’ (2004) 90 Virginia Law Review 965. Campbell v Seaman 63 NY 568 (1876). Boomer v Atlantic Cement 257 NE2d 870 (NY 1970). 101 The decision has been wildly popular in law and economics, see Calabresi and Melamed (n 50), and the case and this commentary have been persuasively critiqued by Laycock (n 53). 102 Restatement (Second) of Torts §§ 822, 826 (1965). 103 ibid § 826; see also § 827 (setting out factors relating to gravity of the harm, including the social value of the plaintiff ’s use); § 828 (setting out factors relating to utility of actor’s conduct, including its social value); A Casner (ed), American Law of Property (Boston, Little Brown, 1954) Vol 6A, § 28.22, 66; § 28.26, 75–77 (emphasising the vagaries associated with, and importance of, a determination as to whether a defendant’s conduct is unreasonable); F Harper and F James Jr , The Law of Torts (Boston, Little Brown, 1956) § 1.24, 70–74 (discussing the importance of reasonableness consideration in nuisance cases). See generally J Lewin, ‘Boomer and the American Law of Nuisance: Past, Present and Future’ (1990) 54 Albany Law Review 189, 212–14 (documenting the limited adoption of the balance of the utilities test for reasonableness, and citing cases). Courts may invoke the Restatement formulation but not actually engage in the cost-benefit test, instead following a more traditional approach to nuisance. See, eg, Morgan v High Penn Oil Co 77 SE2d 682 (NC 1953). 104 See A Schwartz and R Scott, ‘The Political Economy of Private Legislatures’ (1995) 143 University of Pennsylvania Law Review 595 (evaluating the taxonomy of rules produced by private law-making groups such as the American Law Institute, which puts out the Restatements). 99

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B. Polarisation of Formalism and Contextualism The formalist-contextualist debate continues, especially in the area of statutory interpretation.105 In the post-fusion era when Legal Realists and their successors argue for maximal potential use of context, they are in a sense arguing for equity all the time.106 This has the potential of undermining the simplicity and stability (otherwise) of the relatively formal parts of the law. On the other side, formalists will be driven to more elaborate ex ante formulations in the face of party opportunism. The result tends to be multi-factor tests or, to be very formal, rules that are not tailored toward goals. The debate also rages in law and economics, and I have suggested that the new formalism has also mistakenly dismissed hybrid decision-making featuring equity as anti-opportunism. These debates extend importantly to corporate law, in which an explicitly equitable court, the Delaware Court of Chancery, does exhibit an anti-opportunism theme in its corporate jurisprudence, to the delight of some and consternation of others.107 Law versus equity features strongly in the debates over formalism and textualism on the one hand and contextualism and purposivism on the other. The conflict was quite overt in the case of Grupo Mexicano de Desarrollo SA v Alliance Bond Fund Inc,108 in which the question was the availability of preliminary injunctions to freeze unrelated assets in a suit in which only money damages were being sought (known as Mareva injunctions in the UK).109 The majority per Justice Scalia held that because that power did not exist in equity at the time of the Federal Judiciary Act of 1789, federal courts may not issue such preliminary injunctions.110 In dissent, Justice Ginsburg favoured the availability of such preliminary injunctions based on the flexibility and generativity of the equity power.111 For her, the test for a preliminary injunction restricted the power sufficiently, but with no apparent structure or bite to these limits. Both polar positions overstate matters. The theory here suggests that equity should be available, but only by applying the ‘test’ for preliminary injunctions narrowly. In Grupo Mexicano, the defendant was apparently acting quite opportunistically, and the preliminary injunction would serve to protect jurisdiction over assets and prevent judgment-proofness, concerns fitting well within the traditional domain of equity and its role as an anti-opportunism device.

105 See, eg, G Calabresi, A Common Law for the Age of Statutes (Cambridge MA, Harvard University Press, 1982) 5–7; W Eskridge Jr, Dynamic Statutory Interpretation (Cambridge MA, Harvard University Press, 1995); R Posner, The Problems of Jurisprudence (Cambridge MA, Harvard University Press, 1990) 247–309; A Scalia, A Matter of Interpretation (Princeton NJ, Princeton University Press, 1998); A Vermeule, Judging under Uncertainty (Cambridge MA, Harvard University Press, 2006); A Gluck, ‘The States as Laboratories of Statutory Interpretation: Methodological Consensus and the New Modified Textualism’ (2010) 119 Yale Law Journal 1750; J Manning, ‘What Divides Textualists from Purposivists?’ (2006) 106 Columbia Law Review 70; C Nelson, ‘What Is Textualism?’ (2005) 91 Virginia Law Review 347. 106 Smith (n 48) 1177–83; Smith, ‘Modularity in Contracts’ (n 59); see also sources cited above n 7. 107 See A Gold and H Smith, ‘The Equity in Corporate Law’ (unpublished manuscript on file with the authors). 108 Grupo Mexicano de Desarrollo SA v Alliance Bond Fund Inc 527 US 308 (1999) (‘Grupo Mexicano’). See, generally, S Burbank, ‘The Bitter with the Sweet: Tradition, History, and Limitations On Federal Judicial Power— A Case Study’ (2000) 75 Notre Dame Law Review 1291 (analysing the Grupo Mexicano case). 109 See Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 2 Lloyd’s Rep 509 (CA), [1980] 1 All ER 213. 110 Grupo Mexicano (n 108) 332–33. Freezing orders, or Mareva injunctions as they are also known, are f amiliar in Commonwealth jurisdictions. 111 ibid 342 (Ginsburg J dissenting).

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Let me suggest that much of the formalism versus contextualism in American law and jurisprudence is an artefact of the overdoing of fusion. This is as true of contract theory as it is of statutory interpretation. It even extends to jurisprudential über-chestnut Riggs v Palmer,112 the case of the murdering grandson. In that case the court applied an equitable style of analysis to the interpretation of the wills statute and to the will itself, to prevent the murdering heir from profiting from his own wrong—an equitable maxim relabelled in the opinion as ‘common law’. The dissent vigorously argued for a literal application of the wills statute, leaving punishment of the grandson to the criminal law. The contextualist versus formalist debate re-litigates this case repeatedly to this day. Ironically, in an earlier era, the court probably would have treated the transfer to the grandson under the will as valid, but would subject him to a constructive trust, as Ames was to argue later.113 It would appear that the court in Riggs flattened this structure out to make the transfer void, with potentially problematic consequences, as in third-party purchase situations.114

C. The Flattening of Remedies Nowhere are the pernicious effects of flattening the two-level structure of law and equity more apparent than in remedies. Traditionally, rules of thumb, varying somewhat by substantive area, would involve presumptions triggered by irreparable harm, good faith, and disproportionate hardship, with defences of unclean hands and the like. After a few prior hints in the lower courts, the US Supreme Court recently adopted a four-part test for injunctions in eBay v MercExchange.115 Ironically, the Court repeatedly invoked the ‘traditional principles of equity’,116 but the test is actually relatively new and is constructed out of the test for preliminary injunctions.117 Under the eBay test, the movant must show: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.118

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Riggs v Palmer 22 NE 188 (NY 1889). J Ames, ‘Can a Murderer Acquire Title by His Crime and Keep It?’ (1897) 45 American Law Register 225. 114 As opposed to voiding title altogether, imposing a constructive trust would give the true owners—in Riggs, the murdered grandfather’s daughters—equitable, rather than legal, title to the fraudulently acquired property. The distinction has dramatic consequences for third party purchasers. See Note, ‘Vesting Title in a Murderer: Where Is the Equity in the Georgia Supreme Court’s Interpretation of the Slayer Statute in Levinson?’ (2011) 45 Georgia Law Review 877; see also G Gilmore, ‘The Commercial Doctrine of Good Faith Purchase’ (1954) 63 Yale Law Journal 1057, 1059–62 (describing the consequences for third parties who acquire void versus voidable title in fraudulently transferred property—the latter privileges good-faith purchasers for value over true owners). Proponents rationalise this policy as promoting finality in commercial transactions. See A Kull, ‘Rationalizing Restitution’ (1995) 83 California Law Review 1191, 1234. 115 eBay (n 96). The Court has reiterated this test outside the patent context. See Monsanto Co v Geertson Seed Farms 547 US 139, 156–59 (2010). 116 ibid 394. The Supreme Court has of late shown an increased interest, if not understanding, of equity. For an excellent (and in my view quite charitable) analysis, see S Bray, ‘The Supreme Court and the New Equity’ (2015) 68 Vanderbilt Law Review 997. 117 Gergen, Golden and Smith (n 96). 118 eBay (n 96) 391. 113

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Although motivated by the problem of patent trolls and their alleged misuse of the leverage of an injunction, the test is not confined to patent law or intellectual property. Since it was announced, the Court has now applied it in an administrative environmental case, and the test is spreading throughout the federal courts.119 The test seems to adopt an attitude of equipoise, which is appropriate to the context of a preliminary injunction but not so much to cases involving a proven rights violation, in which the problem is potential opportunism on both sides. Take the ‘balance of the hardships’, which traditionally was about whether the injunction would visit a ‘grossly disproportionate hardship’ on the defendant and so would trigger a defence to a presumption for an injunction against a rights violator.120 In the eBay test the tendency is to ask the question without a presumption—asking simply who would be hurt more—and to even do a mini cost-benefit analysis.121 Even worse, notions of good faith and bad faith do not figure directly in the eBay test. Proxies relating to good faith are very relevant to equity—that is often what conscience comes down to—and as part of a second-order safety valve, assessing an actor’s good faith can be crucial. For very clear rights violations, such as a building encroachment, simple knowledge in the violator of the violation tips the scale decisively for an injunction. Another irony is that the very problem that motivated the Court to adopt its test in eBay, the problem of so-called patent trolls, itself calls for a second-order safety valve. The problem is two-sided potential for opportunism—by the infringer who might violate more if the remedy is inadequate, and the holding-out, troll-like patent owner—and the traditional equitable approach based on good faith and disproportionate hardship is tailor-made for this situation.122 Another area of remedies in which equity has been flattened out is the constructive trust. Indeed, in Riggs itself, the court seems to have been so anxious to relabel equity as ‘common law’ that the transfer to the grandson was treated as void, rather than as effective but leading to treatment of the murdering heir as a constructive trustee for the sisters. It would appear that the court was, as usual, overdoing fusion.

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See, eg, Monsanto (n 115) 156–59. See also Gergen, Golden, and Smith (n 96). See, eg, 42 American Jurisprudence 2d, ‘Injunctions’ § 35 (2005) (‘Even if the wrongful acts are indisputable, an injunction may be denied if the payment of money would afford substantial redress and if the injunction would subject the defendant to grossly disproportionate hardship.’). See also R Epstein, ‘A Clear View of The Cathedral: The Dominance of Property Rules’ (1997) 106 Yale Law Journal 2091, 2102 (arguing that ‘essentially the appropriate solution is to allow injunctive relief when the relative balance of convenience is anything close to equal, but to deny it (in its entirety if necessary) when the balance of convenience runs strongly in favor of the defendant. The usual presumption is that the exploitation risk is greater than the holdout risk. This presumption can be reversed by a showing of the dramatic difference in values’); H Schwartz, ‘Injunctive Relief in Patent Infringement Suits’ (1964) 122 University of Pennsylvania Law Review 1025, 1045–46 (suggesting a ‘grossly disproportionate hardship’ standard); H Smith, ‘Institutions and Indirectness in Intellectual Property’ (2009) 157 University of Pennsylvania Law Review 2083, 2131 (‘Because equity incorporated a standard of behavior and an injunction implements a sanction rather than a price, it is not surprising that decision making here is not a matter of equipoise but rather a rough matter of avoiding egregious errors in an otherwise robust system of injunctive relief ’). 121 See, eg, Warner Bros Records v Walker 704 F Supp 2d 460, 468 (WD Pa 2010) (stating one of the eBay factors as ‘whether the balance of the hardships tips in Plaintiffs’ favour’); AshBritt Inc v US 87 Fed Cl 344, 378–79 (2009) (requiring movant to show, inter alia, that ‘the balance of the hardships tips in the movant’s favor’). 122 Smith (n 120) 2125–32; H Smith, ‘Property as Platform: Coordinating Standards for Technological Innovation’ (2013) 9 Journal of Competition Law & Economics 1057, 1078–88. 120

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IV. Conclusion Fusion has turned out to be about a lot more than fusion. Recognising an equitable function of solving complex problems of great uncertainty at a second level allows us to see what needs to be preserved if fusion is to be done right. Equity can be seen as part of a modular private law that manages complexity, rather than as a troublesome wild card. When it comes to problems like opportunism, we are naturally led to solutions like the second-order safety valve, and a strong case can be made that this is the least bad of the alternatives as long as we will have opportunists in our midst. Unfortunately, the general assumption that equity is nothing special has led to an effacement of this structure in both equity and the law. There is no need to resurrect the jurisdictional divide as long as we are clear on what the equitable function is, regardless of the kind of court that is performing it. The hour is late in the United States, where equity is half-submerged in multi-factor tests, effaced by unproductive debates between formalists and contextualists, and flattened out of a now much cruder law of remedies. Even in other jurisdictions, it is imperative to provide a functional analysis of equity, for in the absence of such a rationale, equity will be increasingly difficult to defend.

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10 Dealing with Complexity: Different Approaches to Explaining Accessory Liability JOACHIM DIETRICH*

I. Introduction It is not uncommon for different areas of law to deal with similar problems in disparate ways.1 Further, legal discourse in one field may not engage with discourse in another. Indeed, in an era of increasing legal specialisation, it is easy to remain oblivious to developments and approaches in other areas of the law. An example is provided by accessory liability. The liability of accessories in private law has proved particularly problematic in the different legal contexts within which accessory liability arises. It also remains ‘undertheorised’2 in some areas, or replete with overly technical distinctions and complexities in others. Such different treatment of accessory liability means that any survey of accessory liability across the legal spectrum almost certainly creates a complex picture. Those complexities may be the result of many factors: different legal terminology being used to describe similar concepts;3 different concepts being employed to solve similar problems; and the ‘accident’ of historical developments. Of course, some differences in approaches within each field are undoubtedly the result of substantive differences that justify—indeed, necessitate—different legal rules and outcomes in particular contexts: the differing policy, purposes and functions of the law in context X may warrant a different law of accessories to that in context Y.

*

My thanks go to Pauline Ridge and Iain Field for comments on an earlier draft. See, eg, A Burrows, ‘We Do This at Common Law But That in Equity’ (2002) 22 OJLS 1. H Carty, ‘Joint Tortfeasance and Assistance Liability’ (1999) 19 Legal Studies 489, 489, quoting P Birks, ‘Civil Wrongs: a New World’ in The Butterworth Lectures 1990–91 (London, Butterworths, 1992) 100. 3 For example, liability that accords with the description of accessory liability adopted below arises in criminal and private law, but is described by an over-proliferation of terms, some of which have the same, similar or overlapping meanings. Such terms include ‘aiding and abetting’, ‘authorisation’, ‘common design’, ‘conspiracy’, ‘constructive trusteeship’, ‘contributory liability’, ‘counselling’, ‘inducing or procuring’, ‘dishonest and knowing assistance’, ‘being knowingly concerned in’ and ‘secondary liability’. No doubt, the many different labels reflect the fact that accessory liability has developed independently in different areas of private law, but they also obscure its existence and potentially create confusion, since related ideas are at work. 1

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These complexities are further exacerbated by modern phenomena, including the information overload created by modern technologies4 and the increasing impact of statutory instruments modifying, supplanting or making redundant many ‘common-law’ rules.5 Lawyers seeking to grapple with all of the above may become overwhelmed even when confining themselves to studying related topics within one jurisdiction, let alone when attempting to do so across different jurisdictions. Everywhere, lawyers need to navigate increasingly complex and challenging legal landscapes in order to impose some order and understanding on the law. Of course, a goal of ‘imposing order’ raises questions such as how one goes about achieving this goal, or whether this is even desirable. This chapter reflects certain assumptions about what is good ‘order’ and indeed, that order is desirable, and I will not seek to justify those assumptions at a deeper level.6 I raise these matters to lay the foundations of the focus of this paper, which is to consider the different ways in which we, as lawyers, might seek to make sense of, rationalise, or explain the myriad rules that make up a complex body of law. I will use accessory liability as illustrative for this task. I would venture to suggest that accessory liability is one of the last largely unanalysed areas of private law (perhaps the ‘last frontier’, to be hyperbolic). In our attempt to explain accessory liability in our recent book, Accessories in Private Law,7 Pauline Ridge and I confronted largely the same materials that Paul Davies considered in his book, Accessory Liability.8 We faced the same problems and, compounded by our attempts to draw insights from the criminal law,9 we had to deal with the different approaches arising in criminal versus private law, in common law versus equity and statute versus case law, as well as differences arising within each of those categories. Our conclusions differ markedly and, perhaps, reflect deeper underlying differences as to how best to make sense of complex, not always consistent, legal materials. In Accessories in Private Law, we concluded that there is an organising principle or analytical framework (as opposed to single, liability-determining principle) that provides guidance in applying the specific rules of accessorial liability, which rules nonetheless continue to operate in their specific context. Paul Davies, by way of contrast, in essence advocates an approach whereby the elements of accessory liability are interpreted and defined uniformly as a discrete wrong committed by A. I will call this latter approach the accessorial cause of

4 For example, it is now easy to access masses of materials, including quite low-level court and tribunal decisions, from jurisdictions across the world. 5 See, eg, M Leeming, ‘Theories and Principles Underlying the Development of the Common Law: The Statutory Elephant in the Room’ (2013) 36 University of New South Wales Law Journal 1002, writing extrajudicially, highlighting both the significance of statute, and the tendency by legal scholars of the ‘common law’ (ie, case law, including equity) to neglect it. 6 The taxonomical approach that underlies the broader project attempted in the book, J Dietrich and P Ridge, Accessories in Private Law (Cambridge, Cambridge University Press, 2016), is one that does not adhere to rigid categorisation and thus seeks to avoid some of the pitfalls of certain types of taxonomical projects (see, eg, J Dietrich, ‘What is “Lawyering”? The Challenge of Taxonomy’ (2006) 65 CLJ 549). As such, the approach to taxonomy reflects, perhaps, a legal realist approach to taxonomy such as that advocated by Hanoch Dagan, ‘Legal Realism and the Taxonomy of Private Law’ in C Rickett and R Grantham, Structure and Justification in Private Law: Essays for Peter Birks (Oxford, Hart Publishing, 2008). 7 ibid. 8 P Davies, Accessory Liability (Oxford, Hart Publishing, 2015). 9 Criminal law has a highly developed system of accessory liability, albeit one that is itself not free from considerable legal uncertainties.

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action (or single liability principle) approach, though Davies does not describe it in those terms. Both approaches seek to make the law more comprehensible, but in quite different ways. Obviously, I have a preference for our own approach, and will critique Davies below, but that is not to say that I would always favour that approach in response to all complex areas of law. First, however, an overview as to what accessory liability encompasses is necessary.

II. The Framework for Accessory Liability in Accessories in Private Law At its core, the notion of an accessory is intuitively simple: an accessory is someone who is wrongfully involved in another’s wrong. As with many concepts, however, legally defining ‘accessory liability’ and drawing the precise boundaries between it and other, perhaps related, concepts is not easy. In Accessories in Private Law, we argue that there are three key elements of accessory liability as it manifests in private law, namely: (1) a primary wrong committed by another (the primary wrongdoer, PW); (2) involvement, through conduct by the accessory (A), in that wrong; and (3) a requisite mental state on the part of the accessory, generally knowledge of the other’s wrong.10 Culpable involvement in another’s wrong is both the main rationale for, and defining characteristic of, accessory liability. A is culpable because A’s involvement in PW’s wrongdoing (accessorial conduct) in combination with A’s mental state—generally knowledge of PW’s wrongdoing—links A to PW’s wrong. Accessory liability therefore requires both a conduct element and a mental element, the combination of which constitutes a ‘participation link’ between A and PW justifying A’s liability in relation to the primary wrong. Once the prerequisite of a primary wrong committed by another is established, whether a person is liable as an accessory depends (at a conceptual level, at least) on the interplay between the conduct and mental elements as well as, less significantly, the nature of the primary wrong. However, the precise factors that determine liability depend on the policy, purposes and values that underpin the specific primary wrong in question. As a general rule, and accepting that this need not apply to all species of accessorial liability, the more active A is in bringing about the primary wrong, the less he may need to know about PW’s planned wrongdoing in order to be liable; the less active A is, then the more detailed information A will probably need to know and to a higher degree or level (ie, actual knowledge versus say, recklessness) in order to be liable. Where both elements are weak, the case for liability is also weak. In short, the elements of the framework operate dynamically.11

10 See, eg, Dietrich and Ridge (n 6) [1.1], [2.2], [3.1]. Once A’s liability is established, it is necessary to consider which defences are available to A and which remedies are available against A. 11 This dynamic operation occurs in two ways, since the three elements of the framework are not discrete: both in their doctrinal content and in the judicial application of the elements in individual cases, each element is influenced by the content and significance of the other two elements.

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Critically, therefore, we conclude that there is an organising principle of accessory liability discernible throughout private law and seek to explain its elements and operation.12 However, since our framework is merely an organising or analytical one, the contents of each element of the organising principle are fleshed out by specific doctrines within the common law, equity and statute. Those doctrines are intricately linked to the law of the particular primary wrong to which they are parasitic; that is, the primary wrong to which a party is sought to be made an accessory. We took the view that since the policy, purposes and values of the law of the specific primary wrong to which the accessory liability rules attach and operate in those respective contexts may differ, so the accessory liability rules themselves may be narrower or broader, and may not necessarily operate uniformly.13 The content of the elements of our analytical framework may therefore, and does, differ, in the different areas of the law in which the principle operates.14 As a consequence, we accept that there are differences across private law as to the minimal type of conduct that constitutes ‘involvement’, and the content and level of knowledge that is required to satisfy the mental element of accessory liability. In our view, and contrary to the approach of Paul Davies (considered below), there does not exist a single coherent or definitive test for, or determinative standard of, liability that applies across different areas of law. The elements are formulated too generally to operate as uniform tests of liability or as a template for a generic cause of action. The elements merely provide a starting point for analysis. Ultimately, the question of liability is a normative one: was A sufficiently involved in the primary wrong, with sufficient knowledge, such that he should be held liable for the primary wrong in the light of the purposes and values of that primary wrong? Further, our book does not advocate a strict or inflexible taxonomy of accessory liability. We were mindful of the dangers of a categorisation that is too rigid; where what falls within or without certain categories is defined in absolute terms.15 Exceptional or borderline cases of liability exist that may share some, but not all, of the characteristics of accessory liability.16 Our construction of the analytical framework is largely (and by design) a descriptive exercise based upon the substantive law. It accurately replicates in a more abstract format 12 Our claim is not novel. Many judges and commentators have suggested that this might be so, although there is no consensus regarding how such a principle might operate or what its contents might be. See, eg, R Austin, ‘Constructive Trusts’ in P Finn (ed), Essays in Equity (Sydney, Law Book Company, 1985), 196, 200 n 22; P Sales, ‘The Tort of Conspiracy and Civil Secondary Liability’ (1990) 49 CLJ 491; P Birks, ‘Civil Wrongs: A New World’ in The Butterworth Lectures 1990–91 (London, Butterworths, 1992) 101. 13 This does not mean that there are not general rationales that justify accessory liability, but this is not the place to consider them. See Dietrich and Ridge (n 6) ch 2. Those rationales explain why accessory liability serves an important function in the law, but do not necessarily explain how narrow or wide such liability ought to be and how specific doctrine should be formulated to apply accessory liability in any given area of law. 14 The doctrinal content of the three elements of the framework is determined in all but one case by the purposes and values of the substantive law of the primary wrong in question, namely tort, equity or the particular statute. The exception is the tort of inducing breach of contract, where the purposes and values of both contract and tort are reflected in the content of the doctrine. 15 Further, there may be difficulties in distinguishing accessory liability from primary liability, or from concepts related to accessory liability; and we needed to explain why accessory liability serves an important function in some areas of law, whereas in others, accessory liability is largely or wholly irrelevant. This is not the place to consider such difficulties. 16 For example, knowing receipt liability in equity shares many features with accessory liability, and on some analyses could be incorporated as part of an equitable participatory liability regime. Although we conclude,

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most, but not necessarily all, of that law as it is currently expressed. We go further, however, and argue that in some areas of private law where the elements of our framework are not necessarily adverted to by the courts, those elements are in fact relevant. As such, the framework has a further, explicitly normative, function in that it requires explicit consideration of both A’s conduct and knowledge (in the context of the particular primary wrong). Such consideration may assist in resolving uncertainties in the law by suggesting conceptually coherent solutions, particularly in those parts of private law where tests of accessory liability may be opaque or do not explicitly avert to those elements (eg, ‘common design’, ‘authorisation’).17

III. Alternative Approaches: Davies’ Accessory Liability Are there other ways in which we can make sense of the complex law of accessory liability? I want to consider one alternative approach, namely that of Paul Davies in his book, Accessory Liability.18 Davies defines accessory liability in broadly similar terms to those in which Pauline Ridge and I have in our book, namely that a primary wrong is established, and that the accessory ‘did something in relation to the primary wrong (the conduct element) and was at fault in some way (the mental element).’ Nonetheless, Davies appears to take quite a different approach as to the content of that concept as defined. Davies seeks to identify a uniformly applicable meaning for each element, irrespective of whether the primary wrong in question is breach of contract, or one of the different torts or equitable wrongs (while ignoring statutory regimes and some specialist contexts). Further, the focus of establishing fault is almost entirely on A’s mental element whereas, as already noted, my view is that fault is a combination of both A’s mental element, but also A’s conduct and the extent to which he or she involved himself or herself in PW’s wrong. Davies calls for a standardised approach: ‘A general principle of knowing assistance or inducement should apply regardless of the nature of the primary right of the claimant that has been infringed.’ He concedes, however: ‘This requires some important barriers that have traditionally been erected in the private law of obligations to be dismantled.’19 I stated earlier that he ‘appears’ to take such a different approach; the use of ‘appears’ reflects some ambivalence on Davies’ part. He states at the outset in his book that all elements of the basic framework he adopts (in essence, the same as ours) are required and that this adds to our understanding ‘even if it were ultimately to be concluded that different primary wrongs can ltimately, that recipient liability is probably not, conceptually, accessorial, we nonetheless cover it in our book. u See Dietrich and Ridge (n 6) [7.6]. By way of contrast, Davies deems it not to be accessorial and ignores it; consequently, he seeks to explain equity’s ‘knowing assistance’ accessory rules in isolation from their closely related recipient liability rules. 17 ‘Authorisation’ of a wrong is a basis for liability both under statutory intellectual property wrongs, as well as in the context of tort liability, including that of officers of companies for the companies’ wrongs. ‘Common design’ is one of the tests in tort law for establishing whether a party is an accessory and therefore a ‘joint tortfeasor’ at common law. 18 I put aside the unlikely option of codification of accessory liability. 19 Davies (n 8) 283.

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legitimately generate different regimes of accessory liability.’20 In other words, he concedes that the law may continue to apply a non-uniform approach. But it is important to note that to the extent that he advocates a uniform content of the elements, his exposition of accessory liability, even if it starts as a descriptive exercise, necessarily morphs into a far more strongly normative exercise. Differences in the law are criticised, explained away or ignored, and uniformity is repeatedly championed. The motive for this appears to be the need for ‘certainty’ and ‘simplicity’. I will explain in more detail how Davies defines the two key, conduct and mental elements, and to set out some initial impressions as to how this approach differs to our approach, as well as to offer some preliminary criticisms. The discussion that follows is not intended to be comprehensive.

IV. Conduct and Causation Davies takes the approach that both the conduct and knowledge elements ought to be uniformly applied and interpreted. On the conduct element (or ‘involvement’, as we have termed it above), Davies states that it is preferable if ‘all forms of participation that play a substantial role in the infringement of the claimant’s right were able to provide the basis of accessory liability … [A]llowing some forms of participation but not others to ground a claim has made current doctrine very complex and unsatisfactory.’21 One consequence of this is that Davies argues that there ought to be only one test as to the causal link between A’s conduct and PW’s decision or capacity to commit the primary wrong. Given the difficulty of formulating such a uniform test, of necessity he states that requirement with some imprecision. ‘Only those who participate in a meaningful way in the violation of claimant’s rights should run the risk of accessory liability … [D]efendants whose conduct has only a minimal impact upon the primary wrong should not incur accessory liability.’22 We also adopt a similar contributing cause requirement,23 at least where only mere assistance or encouragement are at issue. However, we argue that for some primary wrongs, the law may demand conduct that has a greater role in PW’s decision or capacity to commit the primary wrong. Inducing breach of contract exemplifies the point. One obvious difficulty with Davies’ conclusion that the conduct element ought to be the same throughout accessory liability24 is that it runs counter to the requirement in the tort

20

ibid 9. ibid 280. Compare Davies’ overview of the current law as to the conduct element at 22–40. 22 ibid 285. See also 40: ‘participation that create[s] a link between [A] and the infringement of the claimant’s right by contributing in a more minimal way to the primary wrong’. It must be stressed that causation here is a reference to the causal connection between A’s conduct and PW’s decision or capacity to carry out the primary wrong, and not the causal link between PW’s wrong and the consequences for the claimant (usually his or her losses). 23 See Dietrich and Ridge (n 6) [3.3.3] and J Stapleton, ‘Unnecessary Causes’ (2013) 129 LQR 39. 24 Another difficulty with this approach is that within the law of the different primary wrongs, the content of concepts such as causation may and do legitimately differ (both within private law, but also, eg, as between criminal and private law). Eg, in some contexts in equity and for common law fraud, a stricter causation regime may exist, indeed, one in which ‘but for’ causation may not always need to be established; or may be presumed or displaced such as by a ‘contributing’ cause approach, whereas in other areas, ‘but for’ factual causation is insisted upon. To be sure, it might make the law simpler and easier to state (and perhaps apply?) if there were uniform tests 21

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of inducing breach of contract (the law’s form of accessory liability for breach of contract) that A’s conduct generally needs to be ‘inducing’. This means that it probably needs to be a ‘but for’ cause of PW’s decision to breach the contract.25 Davies accepts that statements of the law are generally consistent with such a requirement,26 but argues that the results in some court decisions are in line with mere assistance (having a lesser impact) sufficing.27 I accept that cases that appear to accept ‘assistance’ liability do exist, but the critical question is not the label (‘inducing’ or ‘assistance’) but the causal impact of that conduct on PW’s decision to commit the breach. What is critical in the context of inducing breach is that there be a strong causal link between A’s conduct and PW’s decision to breach. If, however, we accept Davies’ view, then potential liability may extend to acts that merely have some ‘meaningful’ impact on PW’s breach. This is potentially dangerously wide.28 The current law’s limit on liability to circumstances in which PW would not have breached the contract if it had not been for A’s (inducing or assisting) conduct puts some justifiable restraint on the liability.

V. Knowledge Similarly, on the question of knowledge, Davies asserts that simplicity demands a uniform approach: The law is clearly much easier to state if the mental element does not vary according to the nature of the defendant’s participation in a primary wrong. Demanding a single mental element is not only appropriate but happily avoids the complexities inherent in the tremendously difficult exercise of managing fine distinctions between different conduct elements and mental elements. Actual knowledge should be required for accessory liability, with a narrow extension to encompass wilful blindness.29

This is not the law; but given that the above statement is undeniably a normative one as to a desired legal position, it is not necessarily a telling criticism merely to point this out. A more telling criticism is that it is surely not an argument of itself to say that the law would be ‘much easier to state’. Using pejorative descriptors, such as that the (current) law is ‘tremendously difficult’ and draws ‘fine distinctions’ amounts to rhetorical assertion, but does not provide reasons for changing the law. There may be very good reasons why the law

of causation, but it would be surprising if accessory liability always adopted the same approach as to the requisite causal link between A’s conduct and PW’s commission of the primary wrong. 25 See, eg, H Carty, An Analysis of the Economic Torts, 2nd edn (Oxford University Press, 2010) 36–38, seemingly favouring a ‘but for’ causal link, that A must have ‘altered’ PW’s conduct (38). See also Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, 534 (Scheller, Stein & Giles JJA): ‘A finding of inducing breach of contract carries with it a finding that the defendant’s actions caused the breach of contract and the loss which flowed.’ 26 Davies (n 8) 279 states that ‘assistance liability’ ‘probably lies latent in the contractual context’ but that ‘overt acknowledgement would not require much, if any, modification of contract law doctrine.’ 27 ibid 150–53. 28 For example, the courts have stressed that ‘mere advice’ is not generally inducing conduct, but if any facilitating conduct that has more than a ‘minimal’ impact potentially gives rise to liability, then any person asked to advise PW as to how she could get out of a contract would surely be liable. 29 Davies (n 8) 282.

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iffers in its approach between different areas, and why in some circumstances, distinctions d (whether ‘fine’ or not) need to be drawn. Requiring actual knowledge (incorporating wilful blindness) uniformly in all contexts, though simpler, is not always desirable. Four observations suffice. (1) Uniformity means that established differences in approach in the contexts of different primary wrongs are not sought to be explained. One would assume that cases that have imposed liability for recklessness, for example, as is the case in equity in some jurisdictions and for inducing breach of contract, have made those choices for good reasons. Displacing one rule with another requires more than a plea to simplicity. (2) Related to this point is that a uniform approach ignores the complex policy contexts within which decisions are made. For example, in the context of intellectual property law, such as trade marks and particularly patents law, courts have expressly rejected liability at common law where a seller sells goods to PW with actual knowledge of PW’s intention to import such goods to a jurisdiction in which they will infringe trademark and patents. The reason is based on a rejection of assistance liability (contrary to Davies’ desired uniformity as to the requisite conduct element) but also expressly policy-based reasons. As Dixon J stated in Walker v Alemite Corp, this ‘narrow … view’ as to what ‘constitutes participation’ is based on the policy that if a sold item is not itself subject to patent, then it can be lawfully sold for whatever purpose it may be used by the purchaser: ‘whatever is not included in the monopoly granted is publici juris and may be freely used as of common right’.30 In short, liability is narrower than Davies advocates. To be sure, we may disagree with such reasons, and the legislature is free to intervene in this context.31 A single rule that all assistance with actual knowledge suffices for liability cannot do that work,32 especially since the intellectual property area is fraught with the need to balance competing interests. In our book, we devote considerable time to explaining the context of the accessory rules. (3) Requiring actual knowledge of A in all cases does not necessarily lead to just outcomes: there are good reasons why, in some cases, a party should be liable as an accessory for involvement in PW’s wrong with something less than wilful blindness. For example, and to simplify considerably (given the uncertainties and jurisdictional differences in approach), equity’s accessory liability rules do not always require actual knowledge: recklessness suffices as a test of knowledge, as indeed does moral obtuseness, in Australia at least.33 This may well be warranted: if A actively seeks an outcome

30 Walker v Alemite Corp (1933) 49 CLR 643 (HCA), 658, and 657–58, citing substantial English authority. These principles are based on sui generis policy reasons that support a narrower and more restrictive accessory liability than might otherwise be justified. See also Dietrich and Ridge (n 6) [5.5.2]. 31 See, generally, Dietrich and Ridge (n 6) [9.1]. 32 Further, and contrary to Davies’ view, nor can a justification defence, even given the expansive role Davies gives it, do all the work. The problem is also not avoided by stating special rules related to the supply of ‘staple articles of commerce’: see Davies (n 8) 280–81. Another difficult problem in the intellectual property context not alluded to by Davies is that in some cases, the courts have countenanced what is, in effect, strict liability for accessories. Where A procures an outcome whereby PW commits a strict liability intellectual property wrong, A may be liable even if unaware of the existence of the claimant’s rights (in much the same way as PW is liable strictly). This may occur more so in the contexts of directors of companies as accessories. See Dietrich and Ridge (n 6) eg, ch 11. 33 The position in the UK is more complex.

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involving PW, why should A not be liable if, for example, he or she recklessly disregards the likelihood that such outcome will lead to a wrong being committed by PW?34 (4) Further, a requirement of ‘actual knowledge’ does not tell us what it is that A must know. The content of what it is that A must know in order to be liable is often the central factual enquiry by the courts. And the content of A’s knowledge is intricately linked to the level or degree to which A knows something. Requiring, say, A to have actual knowledge of PW’s intention to commit the specific wrong he or she ultimately commits, could be displaced by merely requiring the establishment of A’s actual knowledge of something less, for example, that PW might commit some such wrong. The difficult work of adjudicating the culpability of A’s conduct is already largely done by the task of identifying the content of knowledge question. This could become more difficult if ‘actual knowledge’ is always insisted upon, because that requirement does not spell out the link between what precisely A must know (the content) and to what extent A must know it (the degree of knowledge).35 More generally, reference to ‘knowledge’ (actual or otherwise) without more does not identify the varying content that such knowledge may refer to, including: (i) Knowledge of the at-the-time ascertainable facts (from which one may deduce other facts, eg, what PW’s intentions were). (ii) Knowledge of PW’s intentions, including any conditions for, or the likelihood of, such intentions being carried out. (iii) Knowledge in the sense of predictability of certain conduct occurring or as to the consequences of such conduct, eg, that PW will inevitably, likely, foreseeably do X, which will inevitably etc give rise to a breach of contract. (iv) Knowledge of the legal characterisation of PW’s conduct, eg, that it is generically wrongful (eg, pursuing unlawful gains), as opposed to knowledge that conduct will amount to a specific wrong (eg, breach of trust). The analytical framework in Accessories in Private Law does not offer a single or simple answer to the question of how significant such various meanings might be in a particular fact scenario, but it acknowledges that lawyers use knowledge in some or all of these ways, sometimes without clearly identifying which usage is in play. Further, it emphasises that one cannot separate the question of what A knew from A’s conduct: the interrelationship between the two operates in a dynamic fashion to aid in determining whether A’s conduct is wrongful participation in all the circumstances.

VI. Some Detrimental Consequences of a Single Cause of Action Approach To draw some conclusions from the above discussion: Paul Davies’ approach has the advantage of simplicity in setting out the law, so long as uniform content and meaning for the conduct and knowledge elements, respectively, can be arrived at. But such content and 34 See Dietrich and Ridge (n 6) [8.3.4] and see P Finn, ‘The Liability of Third Parties for Knowing Receipt or Assistance’ in D Waters (ed), Equity, Fiduciaries and Trusts (Toronto, Carswell, 1993) 195. 35 For example, the requirement of ‘actual knowledge’ might lead courts to find that A had actual knowledge, but of much less detailed information about PW’s intended conduct and the surrounding circumstances than

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meaning are highly contestable, and Davies’ own conclusions do not reflect the current law; they do not always lead to just outcomes; and they are not necessarily suited to fulfilling the purposes of the individual primary wrongs upon which the accessory liability rules are parasitical. Further, some areas of law which undeniably exhibit greater complexity may not fit and may therefore be sidelined by the taxonomy. Davies’ exposition of the law, based on normative assertions, becomes a tool for destroying legal diversity of approaches. To use a metaphor, a policy of multiculturalism is replaced by a policy of assimilation. I would also suggest that one further important consequence of Davies’ methodology is that it undermines the very definition of the concept of accessory liability itself. We may lose sight of the features of the concept that distinguish it. Although our books concern private law accessory liability, I am going to illustrate this point by reference to a fairly complex aspect of criminal law that continues to invite controversy and disagreement, namely the question of extended joint enterprise liability. The reason I use a criminal law example is because both our theories draw on the criminal law and accessory liability is undeniably established as a category of liability. Joint enterprise liability involves determining the circumstances in which A may be liable for other offences committed in furtherance of a common purpose or joint enterprise entered into by the parties. If A and a principal offender, PO, have a common intention to commit crime X, and PO commits crime Y as an incident of or in the course of committing crime X, the existence of A and PO’s joint enterprise may be a mechanism to extend liability.36 This is a complex topic and only rarely arises in the private law context.37 Whether A’s liability may extend to crimes that diverge in some ways from that which was agreed or envisaged is dealt with in law under the related concepts of common unlawful purpose, joint enterprise liability, or ‘parasitic accessorial liability’.38 The UK Supreme Court has recently affirmed in R v Jogee, with respect correctly, that such liability is not a separate and distinct liability but merely a subset of secondary or accessory liability more generally.39 In Australia, there is support for treating such common purpose liability as having different jurisprudential foundations to assistance liability.40 Putting to one side for might otherwise have been required by the law; that is, the legal rule may superficially demand a more onerous requirement than if a lower degree of knowledge were accepted, but the reality of the application of that rule may be little different to that of the more broadly stated liability requirement (eg, that recklessness suffices). 36

R v Gnango [2011] UKSC 59; [2012] 1 AC 827 [42], [14]–[15]. In torts, the issue has arisen in US case law: see Dietrich and Ridge (n 6) [5.4.5]. In equity, a different but related issue has arisen: whether a party who knows that PW is engaged in some generic wrongdoing (eg, avoiding tax) may be liable for the precise wrong actually committed by PW (eg, breach of trust), absent knowledge of that specific context. 38 R v Gnango [2011] UKSC 59; [2012] 1 AC 827 [14]–[15]. 39 R v Jogee [2016] UKSC 8 [76], [78] (Lord Neuberger PSC, Lady Hale DPSC, Lords Hughes, Toulson and Thomas JJSC): ‘secondary liability includes cases of agreement between principal and secondary parties, but is not limited to them.’ One reason why this conclusion is correct is because the question ‘for what offences (or wrongs) is A liable?’ also needs to be addressed in the absence of a joint enterprise or agreement, eg, where A merely assists or encourages PO. And the answer to that question depends, in part, on what A knew at the time. Eg, if PO is assaulting X and A steps in to assist PO, if X is killed by PO, whether A is liable for assault, grievous bodily harm, manslaughter or murder will depend on what A knew when assisting, including matters such as PO’s intentions, his or her propensities, whether he or she had a knife, etc. 40 See Clayton v R [2006] HCA 58, (2006) 231 ALR 500 [20] (Gleeson CJ, Gummow, Hayne, Callinan, Heydon and Crennan JJ). See also Miller v R [2016] HCA 30 [34] (French CJ, Kiefel, Bell, Nettle and Gordon JJ, in a joint judgment; Keane J concurring). Gageler J, dissenting, appeared to doubt whether joint criminal enterprise liability and accessory liability are conceptually different: [85], [109]. 37

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now this division of opinion, the question in either case concerns how and when criminal responsibility for the additional, non-targeted, offence that is outside the scope of the joint enterprise is attributable to A.41 The requisite fault element in respect of the non-targeted offence is complex, subject to considerable differences of opinion, and varies according to jurisdiction. At common law in Australia (in jurisdictions without criminal codes), A will be liable for any further offences that A subjectively foresees or realises that PO may commit as a possibility of carrying out, or in furtherance of, their unlawful purpose.42 One possible consequence of this extended liability is that an accessory might be found liable on more easily satisfied tests than the principal offender: A must merely have foreseen a possibility of a particular offence, say, a victim being killed with intent (to kill, or cause grievous bodily harm (GBH)) to be guilty of murder, whereas persons committing acts that cause a death will not be liable for murder where they have merely foreseen the possibility of death or GBH.43 The liability rule, effectively for reckless conduct, has both its detractors and supporters.44 In the UK, the Supreme Court stressed in Jogee, again correctly, that since different offences (or wrongs) have different mental elements, the requisite mental element necessary to render a person liable as an accessory will depend on the requisite mental element of the primary offence (or wrong) for which A is sought to be made liable.45 Consequently, 41

A Simester, ‘The Mental Element in Complicity’ (2006) 122 LQR 578, 592–93. In Australia this was recently affirmed in Miller v R [2016] HCA 30 (French CJ, Kiefel, Bell, Nettle and Gordon JJ, in a joint judgment; Keane J concurring). Gageler J dissented and agreed with the approach adopted in the UK. See also eg, McAuliffe v R [1995] HCA 37; (1995) 183 CLR 108, 115–19; Gillard v R [2003] HCA 64; (2003) 219 CLR 1 [112]; and Clayton v R [2006] HCA 58; (2006) 231 ALR 500 [17]. This is a subjective test, but potentially very easy to meet and consequently broad. See S Gray, ‘“I Didn’t Know, I Wasn’t There”: Common Purpose and the Liability of Accessories to Crime’ (1999) 23 Criminal Law Journal 201. This may include foreseeing that PO might commit acts with a specific mental element. See also McAuliffe v R [1995] HCA 37, (1995) 183 CLR 108, 115–19; Gillard v R [2003] HCA 64, (2003) 219 CLR 1 [112] and Criminal Code 1995 (Cth) s 11.2A(1)(a)(ii) and (3)). 43 See, eg, earlier UK and PC cases, now overtaken in relation to the requisite mental element for murder, by the decision in R v Jogee [2016] UKSC 8: Hyde [1991] 1 QB 134, [1990] 3 All ER 892 (CA) (A need not tacitly agree to that outcome, but merely contemplate it); R v Powell: R v English AC [1999] 1 AC 1 (HL) 27 (Lord Hutton: sufficient if A realised that PO might act with certain intention etc; ie, it need only be possible, not probable). Although this language is particularly widespread in the context of extended, ‘parasitic accessorial liability’ arising from a joint enterprise, it is clear, however, particularly from Hyde, that this low-level predictability requirement is not limited to where A acts under an actual agreement with PO. In other words, it is not limited to joint enterprise (agreement) cases, but applies equally to cases involving mere assistance and encouragement. See Justice Hooper and D Ormerod (Gen Eds) Blackstone’s Criminal Practice (Oxford, Oxford University Press, 2012) 70–71 [A4.6]. A is liable if A assists PO, merely contemplating the possibility that PO might commit the offence. One might therefore suggest that even under the broader test of liability in Australia, extended parasitic liability is largely unnecessary as a distinct concept: A will be liable, irrespective of whether within or outside a joint enterprise, for the possible consequences when involving himself in PO’s venture. Indeed, if anything, the terms of any joint enterprise may be a means of limiting A’s liability, if certain conduct was precluded. 44 See, eg, S Odgers, ‘Criminal Cases in the High Court of Australia: McAuliffe and McAuliffe’ (1996) 20 Criminal Law Journal 43, particularly at 45–47, who considers that it will result in conviction for ‘constructive murder’. See also Kirby J in his dissenting judgment in Clayton v R [2006] HCA 58, (2006) 231 ALR 500 [87] onwards, rejecting such broad liability. Contrast the majority joint judgment of Gleeson CJ, Gummow, Hayne, Callinan, Heydon and Crennan JJ at [15]–[21] and particularly at [17]; affirmed in Miller v R [2016] HCA 30. The extended liability is persuasively defended by the House of Lords in R v Powell; R v English [1999] 1 AC 1, 13–15. The policy reasons that might justify such a broad liability are discussed by Simester (n 41) particularly at 598–600, and J Smith, ‘Criminal Liability of Accessories: Law and Law Reform’ (1997) 113 LQR 453, particularly at 464, who points out that A must be reckless as to whether a murder is committed, and ‘[r]ecklessness whether murder be committed is different from, and more serious than, recklessness whether death be caused by an accident’. 45 This is consistent with the approach adopted in Dietrich and Ridge (n 6) in relation to private law, that the requisite mental element necessary to establish accessory liability can vary and is determined in part by the wrong in question, as well as the degree of A’s involvement in the wrong. 42

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the requisite mental element for an accessory to murder requires that A must assist PO in his or her plan with the same requisite intention that PO must possess to be liable for murder (that is, to kill X or cause GBH to X). The mental element of liability is therefore intent; however, proof that A foresaw that PO might kill (or cause GBH) may be sufficient evidence of such an intention, but it is the intent that determines liability, not foreseeability alone.46 Importantly, however, if A is sought to be made liable for manslaughter, A having commited to a plan to cause some harm to X, or even merely to frighten X, and PO kills X in pursuit of that plan, A may be liable for manslaughter if the risk of harm was an objectively foreseeable consequence of their plan.47 In other words, if PO performs the plan more or less according to a common understanding and someone dies, then A is liable for manslaughter if death was objectively foreseeable consequence even though not part of the plan. Paul Davies deals with this problematic area of law in two, distinct, ways. First, he denies that any extended joint enterprise liability based on foreseeability should arise. Davies argues that since liability is not limited to offences of which A had actual knowledge when involving himself or herself in the enterprise, it is an unacceptable extension of liability. If we were to equate Davies’ requirement of ‘actual knowledge’ with the Supreme Court’s requirement that A intend the offence (though, it should be noted, the relationship between ‘intention’ and ‘knowledge’ is not easy to formulate)48 then Davies views are largely49 consistent with the decision in Jogee as to the mental element for accessories to murder in the UK (but not Australia). But his insistence on actual knowledge is inconsistent with the law on manslaughter, where Jogee emphatically accepts that objective foreseeability of the risk of some harm may suffice for liability. Irrespective, however, of one’s views about how wide joint enterprise liability should extend, its precise content and how the appropriate balance should be struck,50 that point is by the way for current purposes. For Davies goes further. He argues that if joint enterprise liability continues to exist in its wider form, then it is not a form of accessory liability. Although he is not alone in that view,51 I wish to consider the consequences of this view. 46 See R v Jogee [2016] UKSC 8; particularly [88]–[99]. Of course, A will intend the outcome if A agrees to a plan to commit the more serious offence conditionally, even if the likelihood of that condition being fulfilled is small: eg, if the premises to be robbed are guarded, which is unlikely, we will overcome any resistance with violence. 47 See R v Jogee [2016] UKSC 8, eg [96]: A may be liable for X’s death if A assists in an unlawful act that ‘all sober and reasonable people would realise carried the risk of some harm (not necessarily serious) to another, and death in fact results’. 48 See Dietrich and Ridge (n 6) [3.4.3.2] and [3.4] generally. One difficulty is that ‘intention’ may be focussed more on ‘knowledge’ in the sense of predicting likely future outcomes, that predictability being based on knowledge of current facts. 49 I say ‘largely’, since such intention might still be inferred by a jury from the foreseeability of a likely outcome, ie without proof that A actually ‘knew’ that it would happen. This reiterates the difficulty with positing a requirement of ‘actual knowledge’ in a way that is removed from the content of knowledge question: see the previous section of this paper. 50 See authorities and commentary cited nn 42–44 above for both defenders and critics of the subjective foreseeability rule for murder, and the discussion in R v Jogee [2016] UKSC 8 for an overview of some of the competing authorities and academic commentary. 51 See A Simester, J Spencer, G Sullivan and G Virgo, Simester and Sullivan’s Criminal Law Theory and Doctrine, 4th edn (Oxford, Hart Publishing, 2010) 242–43, who argue that joint enterprise liability is distinguishable from ordinary accessory liability. I agree, however, with D Ormerod, Smith and Hogan’s Criminal Law, 13th edn (Oxford University Press, 2011) 228–30, that this is merely an example of accessory liability: liability arises from A’s culpable involvement in the original, targeted offence, and that liability for the non-targeted offence derives from aiding, abetting etc, the original offence, where it was foreseeable that the further offence might be done in furtherance of that offence. See also above n 39, n 40 and ABCD [2010] EWCA Crim 1622 [37].

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On first appearances, joint enterprise liability seems to come within all fours of both Davies’ and Pauline Ridge’s and my definition of accessory liability: PW has committed a wrong which A has not personally committed; A has assisted or encouraged PW’s conduct prior to or at the time of that commission (by means of their agreement and steps taken to effect it); and A had some knowledge of PW’s intentions to commit a wrong. When these elements are satisfied, then surely a further, but still central, question that the law of accessory liability must address is this: for which wrongs, precisely, should A be liable? This issue arises even where accessory liability arises in the absence of a joint enterprise, for example, for encouraging or assisting in a wrong, so that it cannot be shunted aside on that basis. There are two related questions that arise even where A merely assists (absent a joint enterprise): first, must A know, in the sense of ‘predict’, the precise wrong that PW ultimately commits; or merely know the type of wrongdoing that PW intends to commit?52 Secondly, does A need to be able to predict that whatever wrongs PW may commit are likely to happen as a matter of near certainty, or some lesser probability? An accessory will rarely be able to ‘know’ exactly what is going to happen and yet the law accepts that that lack of precision does not always preclude liability.53 In short, less than near certain outcomes might justifiably be sheeted home to A where A knew the surrounding circumstances leading to that outcome. If such liability is not accessorial, what is it? It cannot be liability as a primary wrongdoer; nor is it vicarious or agency-based liability. If we define accessorial liability so narrowly so as to exclude liability that is accessorial-like in all regards other than that it extends beyond ‘actual’ knowledge of the precise wrong, then we are defining this fundamental concept by reference to contestable normative views as to the specific content of one of its elements. It is a welcome decision, therefore, that the UK Supreme Court has affirmed that there is no separate doctrine of ‘joint enterprise’ liability: it is part and parcel of accessory liability. And that is so, even in contexts where a party is made liable as an accessory for the foreseeable consequences of a planned or otherwise aided unlawful act.

VII. Conclusion We have, therefore, two very different approaches to trying to make sense of a complex body of law. Paul Davies attempts to describe and define a law of accessory liability, whereas Pauline Ridge and I have argued for an analytical framework for the laws of accessory liability. In order to provide further guidance, we have also argued that the framework operates in a dynamic way. This is so at a doctrinal level where it explains why the requirements of particular accessorial rules are formulated as they are.54 But is the operation of the framework

52 If PW intends to commit generic wrong X, does it matter whether the wrong ultimately committed is X1 or X2 etc? The issue has arisen in equity: see, eg, Dietrich and Ridge (n 6) [8.3.4.2]. 53 This can be so even where ‘actual’ knowledge is required, since it does not spell out what A must actually know. If A has actual knowledge that PW intends to beat victim C, that PW is carrying a knife, and that PW on occasion has committed serious violence, this may justify A being held liable for GBH or murder even though we cannot conclude that A actually knew that PW was going to cause GBH or kill. At worst, A may only have been reckless to that possibility, or merely have foreseen it. 54 Eg, according to some formulations of the equitable doctrine of knowing assistance, the requisite primary wrong of breach of trust or fiduciary duty must be particularly egregious (‘a dishonest and fraudulent design’);

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also amenable for use in the judicial application of accessory principles and determination of accessory liability in individual cases? We are not suggesting here that existing accessorial liability rules be jettisoned in favour of a holistic inquiry in which the significance and weighting of each element of the framework is at large. But, within the parameters of the existing rules, is it possible to illuminate and simplify the process of judicial determination of liability by more explicit reference to the dynamic interplay of the three elements of the framework? I believe that it is: all relevant elements of the framework should be considered, as part of an overall assessment as to whether A’s conduct in all the circumstances is culpable. There is some judicial support for such an approach. For example, a similar methodology is implied in the Federal Court of Australia’s description of equitable participatory liability in Grimaldi v Chameleon Mining NL (No 2).55 The Court’s description presages a judicial methodology by which the three elements of the framework are considered in a contextspecific fashion and given varying weight accordingly. [P]articipatory liability as it evolved in equity … was not based on inflexible formulae. Given the variety of circumstances in which, and bases on which, a third party could be characterised as a wrongdoer in equity … varying importance has been given to three matters: (i) the nature of the actual fiduciary or trustee wrongdoing in which the third party was a participant; (ii) the nature of the third party’s role and participation, eg as alter ago, inducer or procurer, dealer at arm’s length, etc; and (iii) the extent of the participant’s knowledge or, assumption of the risk of, or indifference to, actual, apprehended or suspected wrongdoing by the fiduciary.56

Interestingly, Paul Davies criticises such an approach as itself being too complex,57 though we see it, and in our book advocate it, as a means of providing some focus to the inquiry and as therefore aiding our understanding of a complex body of law. I accept, however, that it is a more nuanced and flexible approach than having a single strict rule of ‘actual knowledge’, and some lawyers will strongly object to it for that reason alone. I would argue that a more nuanced approach merely guides us in the exercise of establishing culpability and as such allows specific laws of accessory liability to achieve their very different purposes, depending on the primary wrong in question and all the factual circumstances. I wish to conclude by observing that if this debate about the approach to, and objects of, legal ordering that I have outlined above appears familiar, then that is indeed so. It reflects a debate starting decades past (but still ongoing) between those advocating for unjust enrichment as a guiding principle versus unjust enrichment as a single cause of action (or, if not a single cause of action, then as having a role very close to that, so that unjust enrichment is the ‘grundnorm’ for, or provides a ‘proper norm or basis for evaluation’ of,58 causes of

whereas, if A procures the primary wrong (that is, A’s involvement has greater import), any breach of trust suffices: see Dietrich and Ridge (n 6) [8.3.1.4]. See also Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6, (2012) 200 FCR 296 [247]. 55

Grimaldi v Chameleon Mining NL (No 2) (n 54) (Finn, Stone and Perram JJ).

56 ibid. 57

Davies (n 8) 282, 127–29. Mason and J Carter, Restitution Law in Australia (Sydney, Butterworths, 1995) 11; cf K Mason, J Carter, G Tolhurst, Mason & Carter’s Restitution Law in Australia, 2nd edn (Sydney, LexisNexis Butterworths, 2008) 8: unjust enrichment ‘does provide both an aspiration and a norm or standard for judgment’. See also P Birks, An Introduction to the Law of Restitution revd edn (Oxford, Clarendon Press, 1989) 20, and the further shift to unjust 58 K

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action).59 In that debate, I have always been on the side of unjust enrichment as, at best, a guiding principle. Davies’ approach to accessory liability appears to me to place him in the cause of action camp if his views could be transposed to that very different, unjust enrichment, context. Both approaches are legitimate academic attempts to make sense of complexity and masses of materials. Which of these two approaches (or other approach) ultimately prevails, is anyone’s guess. Which approach is the better fit is for those who engage in the debate to articulate. This chapter is an early contribution to what will be, I hope, an enlightening debate.

enrichment even more closely equating to a single cause of action in P Birks, Unjust Enrichment, 2nd edn (Oxford, Oxford University Press, 2005). 59 Justice Keith Mason, ‘Where has Australian restitution law got to and where is it going?’ (2003) 77 Australian Law Journal 358, 361. When unjust enrichment is used in this way, the stages of analysis are themselves derived directly from, indeed, are little more than a restatement of, the concept of unjust enrichment itself. Given the very detailed exposition of the meaning of the individual elements, this may lead to the stages of inquiry subsuming the individual liability rules.

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11 The Challenges Presented by Fundamental Rights to Private Law HUGH COLLINS*

I. The Turn Towards Fundamental Rights In many jurisdictions, fundamental rights are sometimes used to shape private law.1 The sources of these fundamental rights may be found in legislation, constitutions, bills of rights, or transnational treaties such as the European Convention on Human Rights (ECHR) or the Charter of Fundamental Rights of the European Union (CFREU). Those rights may be invoked by courts not only when interpreting the powers and duties of public authorities, but also when determining disputes between private individuals in contract, tort, and property law. In private law, a fundamental right may be used to supplement, qualify or reconfigure the existing rights and obligations of the parties. For example, a right to respect for private life might be employed to justify a development of the law to place new restrictions on the freedom of the press to publish embarrassing or intrusive photographs of a celebrity.2 Whatever the sources of domestic private law in codes, statutes or judge-made common law, fundamental rights can be used to mould the rules and principles of private law The precise mechanism by which fundamental rights can be employed to shape private law differs between jurisdictions. In France and other ‘monist’ systems that regard international legal obligations as part of domestic law, all courts must always strive to act * I am grateful to Roderick Bagshaw, Michael Dowdle, James Penner, Justine Pila, and Philippa Collins for comments on an earlier draft. 1 D Oliver and J Fedtke (eds), Human Rights and the Private Sphere: A Comparative Study (London and New York, Routledge-Cavendish, 2007); M Hesselink, ‘The Horizontal Effect of Social Rights in European Contract Law’, in M Hesselink, The New European Private Law (The Hague/London/New York, Kluwer Law International, 2002) 177; T Barkhuysen and S Lindenbergh (eds), Constitutionalisation of Private Law (Leiden/Boston, Martinus Nijhoff, 2006); D Friedmann and D Barak-Erez (eds), Human Rights in Private Law (Oxford, Hart Publishing, 2001); C Mak, Fundamental Rights in European Contract Law: A Comparison of the Impact of Fundamental Rights on Contractual Relationships in Germany, the Netherlands, Italy and England (The Netherlands, Wolters Kluwer, 2008); S Grundmann (ed), Constitutional Values and European Contract Law (The Netherlands, Kluwer Law International, 2008); G Bruggermeier, A Ciacchi and G Comande (eds), Fundamental Rights and Private Law in the European Union, vol I, A Comparative Overview (Cambridge, C ambridge University Press, 2010); O Cherednychenko, Fundamental Rights, Contract Law and the Protection of the Weaker Party (Munich, Sellier, European Law Publishers, 2007); D Hoffman (ed), The Impact of the UK Human Rights Act on Private Law (Cambridge, Cambridge University Press, 2011). 2 See, eg, Von Hannover v Germany (No 2) (2012) 55 EHRR 15; Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 AC 457; Hosking v Runting [2003] 3 NZLR 385 (NZCA).

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in accordance with international conventions regarding fundamental rights, such as the ECHR. In Germany, the Constitutional Court can be asked to declare that a decision of a civil or private law court is unconstitutional for a failure to apply private law in conformity with the German Basic Law. In the United States, although the Supreme Court said in Shelley v Kraemer3 that the ‘state action’ requirement for invoking the 14th Amendment of equal protection of the laws was satisfied by any decision of a court, including the judgment in this case concerning the enforcement of a restrictive covenant attached to property, that principle does not seem to have been followed.4 In the United Kingdom, as a result of the Human Rights Act 1998 (HRA), courts as public authorities are required to act in accordance with the ECHR,5 and they are also required, if possible, to interpret legislation in a way that is compatible with the Convention.6 A similar scheme originates from, and applies in New Zealand.7 More recently, the CFREU imposes a duty to ensure conformity with its provisions whenever a court is interpreting or applying European Union law.8 When implementing EU law, the Court of Justice of the European Union (CJEU) and national courts are required to ‘respect the rights, observe the principles and promote the application thereof ’.9 In South Africa, section 8 of the Constitution states that the Bill of Rights may bind natural and juristic persons where appropriate, taking into account the nature of the right and any duty imposed by the right, and explicitly empowers courts to develop the common law to give effect to a fundamental right. Although these mechanisms for linking fundamental rights to private law have material differences, the general pattern that emerges is a legal framework that permits and usually requires a court to consider whether the application of fundamental rights to a private law dispute might affect the result, at least to the extent of favouring one interpretation of the existing law over another. Many private lawyers, especially those trained in the common law, have found this insertion of fundamental rights into private law rather challenging. Of course, some of the values enshrined in those fundamental rights, such as respect for private property and respect for the liberty of the individual, are familiar bedrock principles of private law. So it is not the insertion of those values into the common law that is especially troubling; rather, what seems unfamiliar is the need to consider explicitly whether the current law conforms to fundamental rights. In the past, the common law may have been able to avoid any consideration of a direct engagement between fundamental rights and private law by means of the assertion that the common law already contained within itself, and was founded upon, respect for appropriate fundamental rights such as liberty and property rights, that had inspired every aspect of the legal system.10 But that assertion is not the same as accepting

3

Shelley v Kraemer 334 US 1 (1948). D Cahen, ‘The Impact of Shelley v Kraemer on the State Action Concept’ (1956) 44 California Law Review 718; M Rosen, ‘Was Shelley v Kraemer Incorrectly Decided? Some New Answers’, (2007) 95 California Law Review 451. 5 Human Rights Act 1998 (UK), s 6. 6 ibid s 3. 7 New Zealand Bill of Rights Act 1990, ss 3 and 6; P Rishworth, ‘New Zealand: Raking Human Rights into the Private Sphere’ in Oliver and Fedtke (n 1) 312. 8 Charter of the Fundamental Rights of the European Union, [2012] OJ C26/02 (consolidated version of the Treaties) (CFREU), given legal status by Art 6, Treaty of European Union (consolidated version) [2012] OJ C326/01. 9 CFREU ibid Art 51(1). 10 Lord Reed, JSC, ‘The Common Law and the ECHR’, www.innertemple.org.uk/downloads/members/ lectures_2013/lecture_reed_2013.pdf. 4

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the more recent contention that fundamental rights can be explicitly invoked in every case with a view to questioning the existing rules of private law, by going back to basic rights or first principles. Because courts in the United Kingdom have to comply with the requirements of the HRA and the CFREU, explicit evaluations of private law by reference to fundamental rights are becoming commonplace. One suspects that private lawyers in the common law tradition will not, in general, welcome this introduction of abstract or general concepts like liberty, equality, and privacy, into the legal reasoning about particular cases for, when solving concrete problems, they normally prefer to work with precise rules, rather than kaleidoscopic and competing principles. As well as resisting the suggestion that every case in private law might be reduced to an examination of human rights, my impression is that private lawyers typically regard most of the rights mentioned in these documents containing statements about fundamental rights as fitting into the background legal order on which effective private law depends, but not as having much relevance to the substantive rules of contract and tort governing particular private law disputes. For instance, they might concede that a private law case, like any other case before a court, deserves a fair trial and an effective remedy, in accordance with Article 6 of the ECHR and Article 47 CFREU, yet insist that this constitutional procedural requirement is not going to affect the substance of the law of contract and tort. As has often been apparent in judicial decisions, however, this distinction between constitutional structures and processes, on the one hand, and substantive rights in private law on the other, is not easy to maintain in practice.11 Before the CJEU, for instance, it is apparent that consumers who are resisting repossession orders against mortgage lenders are regarded as having a fundamental right to a home, which cannot be removed without following a fair trial process that should be effective to grant consumers all their rights under EU consumer law to challenge the validity of banks’ security rights.12 Such rulings ensure that any unfair terms in those contracts can be expunged by a court, which in turn may enable a consumer to keep his or her home. Although the right to a fair trial is principally a procedural matter, in this sort of repossession case, in combination with the right to a home and the right to an effective legal remedy, its effect is greatly to enhance the protection of home buyers against mortgage lenders by blocking any kind of eviction process that does not consider every possible legal ground for resisting repossession, whether or not those objections were even raised by the consumer. Even more clearly in the decision of the English Court of Appeal in Benkharbouche v Embassy of Republic of Sudan,13 the procedural right to a fair trial under Article 47 CFREU was used to ‘disapply’ a domestic statute, the State Immunity Act 1978, in order to ensure that a cook working in an embassy could claim her substantive rights under the EU law governing working time and the Regulations that implement it in national law.14 As these decisions illustrate, even those fundamental rights that appear primarily procedural in their scope do not merely affect legal processes, but also help to articulate and defend substantive rights under private law. In this chapter, I seek to understand better the challenges presented by this emerging practice of subjecting private law to an intense gaze from fundamental rights, a process

11

See, eg, Osman v United Kingdom (1998) 29 EHRR 245; C Gearty, ‘Unravelling Osman’ (2001) 64 MLR 159. Case C-34/13 Kušionová v SMART Capital as (2014, CJEU) (not yet reported). 13 Benkharbouche v Embassy of Republic of Sudan [2015] EWCA Civ 33, [2015] 3 WLR 301, [2015] ICR 793. 14 Dir 2003/88 concerning certain aspects of the organisation of working time [2003] OJ L229/9; Working Time Regulations 1998, SI 1998/1833. 12

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that is sometimes described as the ‘constitutionalization of private law’.15 It is not merely that this process of the invocation of fundamental rights in what looks like a straightforward private law case concerning repossession of a mortgaged property, or a dispute about hours of work and holiday pay, is unfamiliar and outside the normal range of arguments accepted in private law cases. At least for some private lawyers, this insertion of fundamental rights into litigation over ordinary contractual, tortious, and property disputes is perceived to present worrying challenges to basic structures of the legal order and to the nature of private law. This chapter offers a fresh analysis of the sources of those worries and considers whether they are exaggerated, or well-founded. The next section examines what are described as the three, main challenges to common understandings of private law that emerge during this process of the application of fundamental rights to private law. Next, the chapter explains the legal concept known as indirect effect, because this concept is frequently employed to explain why none of those three challenges in fact presents serious problems. In brief, the notion of indirect effect insists that fundamental rights only place duties on courts and other public bodies. Therefore, private individuals and organisations are never directly affected by fundamental rights with respect to their rights and obligations under private law. Although it is accepted here that, at least in theory, the method of indirect effect addresses adequately the three main challenges presented by the constitutionalisation of private law, the argument is that the actual judicial practice that is normally labelled as giving indirect horizontal effect to fundamental rights should offer scant comfort to private lawyers. On the contrary, it is suggested that, behind a veneer of the method of indirect effect, the courts are reshaping private law by reference to fundamental rights to such an extent that judicial practice is verging close to giving direct horizontal effect to fundamental rights by conferring new rights and obligations in private law.

II. Three Challenges Posed by the Constitutionalisation of Private Law A. Reconfiguration of Rights and Obligations by Alignment The first and most immediate challenge posed to private lawyers is the proposal that the rules of private law should be aligned to the rights and principles of any relevant constitution, or binding human rights convention. This proposal requires perfect congruence between the fundamental rights that protect individuals against abuse of power by the state, and those rights or interests protected by private law as between individuals. That search for consistency might require the modification of existing private law rules, or even the creation of a new cause of action. For instance, under Article 8 of the CFREU, everyone has the ‘right to the protection of personal data’. If an individual is protected against misuse of confidential personal data by the state, to achieve consistency, the same protection would have to be accorded to an individual against a private body, such as an employer, an internet service provider, or a ticket agent, even if that consistency might require the construction of 15 Hans-W Micklitz, ‘Introduction’, in Hans-W Micklitz (ed), Constitutionalization of European Private Law (Oxford, Oxford University Press, 2014) 1.

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a new cause of action in tort, or a new defence against disclosure of information.16 Those who are most alarmed about this challenge fear that human rights law will colonise the whole of private law and force a fundamental and disruptive reorganisation of its existing rules and principles. Since private law already reflects the core values that are expressed in human rights law, such as liberty, equality before the law, and respect for a person’s possessions, the more alarmist claims about the need to rewrite the whole of private law to achieve consistency with fundamental rights seem far-fetched. Nevertheless, the process of alignment between private law and fundamental rights does have the potential to disrupt existing legal rules and force a reconsideration of many of the subtle compromises of individual interests that have been forged in the details of private law over the centuries. Many doubt whether such a thoroughgoing reconfiguration of private law is either practicable or desirable. In particular, it is argued that the restatement of the problems addressed by private law at a higher level of generality or abstraction in the language of fundamental rights will not assist clarity in reasoning, or serve to guide practical determinations.17 The uncertainty generated by the need to balance a plethora of competing rights in a proportionate way is perhaps nowhere more apparent than in the EU regulation of the Internet by reference to many rights, including the protection of intellectual property, the freedom to conduct a business, freedom of expression and information, the avoidance of discrimination, and the right to a fair trial and an effective remedy.18 The force of the challenge posed by the need for alignment will be determined in part by the range of rights that courts will be required to observe. If the list of rights is perfunctory and merely mentions some core liberal rights such as freedom, property rights, and equality before the law, as in the US Constitution, there may be few occasions when the demands of alignment will make a difference. In modern times, however, most constitutions and charters go beyond civil and political rights to protect social, economic and cultural rights. For instance, the CFREU creates a right to work19 and the freedom to conduct a business.20 Within the scope of EU law, the requirement to observe such rights may steer private law in new directions. The CJEU has suggested that the freedom to conduct a business creates a presumption in favour of freedom of contract, so that there would need to be good and proportionate reasons for any legal restrictions on the right to negotiate the terms of a contract.21 On the other hand, the Charter also ‘ensures a high level of consumer 16 See, eg, Case C-275/06 Productores de Musica de Espana (Promusicae) v Telefonica de Espana SAU [2008] CMLR 465 (ECJ); The Rugby Football Union v Consolidated Information Services Ltd (Formerly Viagogo Ltd) [2012] UKSC 55, [2012] 1 WLR 3333. 17 O Cherednychencko, ‘Subordinating Contract Law to Fundamental Rights: Towards a Major Breakthrough or Towards Walking in Circles?’ in S Grundmann (ed), Constitutional Values and European Contract Law (The Netherlands, Kluwer Law International, 2008) 35, 50. 18 See, eg, Case C-314/12 UPC Telekabel Wien GmbH v Constantin Film Verleih GmbH and Wega Filmproduktionsgesellschaft mbH (27 March 2014, not yet reported); Goldeneye (International) Ltd v Telefonica UK Ltd [2012] EWHC 723, [2012] RPC 28 (Ch) [117]; C Geiger, ‘“Constitutionalising” Intellectual Property Law? The Influence of Fundamental Rights on Intellectual Property in the European Union’ (2006) International Review of Intellectual Property and Competition Law 371. 19 CFREU Art 15: everyone has the right to engage in work and to pursue a freely chosen or accepted occupation. 20 CFREU Art 16: the freedom to conduct a business in accordance with Union law and national laws and practices is recognised. 21 Case C-426/11 Alemo-Herron and others v Parkwood Leisure Ltd [2013] ICR 1116, [2014] 1 CMLR 21; S Weatherill, ‘Use and Abuse of the EU’s Charter of Fundamental Rights: On the Improper Veneration of “Freedom of Contract”’ (2014) 10 European Review of Contract Law 167.

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protection’,22 so freedom of contract will have to be balanced against the important value of consumer protection. The presence of all these competing rights not only complicates the task of alignment, but also may steer private law towards new points of the compass. For instance, one way to reconcile the protection afforded to consumers in the CFREU with the freedom to conduct a business could be to draw a profound dividing line between commercial contracts and consumer contracts, so that the contract law rules applicable to those two kinds of transactions would diverge even more than is already the case. The alignment of private law with fundamental rights may also redirect the kinds of interests that are protected by private law. Whereas private law has hitherto primarily addressed material harms, such as injury to the person or property and financial loss, interference with human rights is often more about harms to dignity, self-respect, social inclusion, and formal equality. Although the law of tort does protect those interests in some cases, its prohibitions might have to be expanded to ensure adequate protection of fundamental rights. Contract law has traditionally been reluctant to protect non-material or non-pecuniary interests, apart from those occasions such as a holiday booking, where the purpose of the transaction is enjoyment, or freedom from worry.23 That boundary might be challenged by the need to align the law with fundamental rights. Consider, for instance, the German case concerning a daughter acting as surety for a loan to the father’s business.24 Given the daughter’s circumstances, there was never any possibility of her being able to guarantee the debt or, at least, if she had tried to repay, the effort would have plunged her into poverty and servitude to the bank for the rest of her life. The German Constitutional Court held that, by not relieving her from this legal obligation, the private law courts had failed adequately to respect the daughter’s dignity. In other words, she may have agreed to the transaction without undue pressure or influence, and the terms of the transaction may have been fair in themselves, but there was still scope for challenging the validity of the transaction as one not suitable for a society that respects human dignity. This contrast in the gist of claims in private law and for violations of fundamental rights has been noted and sometimes relied upon by the UK Supreme Court as a reason for not altering the law of tort where a claim under the HRA is also available. For instance, Lord Toulson has remarked that: ‘Whereas civil actions are designed essentially to compensate claimants for losses, Convention claims are intended to uphold minimum human rights standards and to vindicate those rights. The difference in purpose has led to different time limits and different approaches to damages and causation.’25 Lawyers in the common law tradition are certainly aware that the law constantly evolves to meet new challenges and to protect new kinds of interests. Usually, the existing law can be adapted without much difficulty to ensure that it meets the needs of contemporary society and economy. In that context, minor changes to the existing rules of private law in order to ensure full congruence with fundamental rights will not be especially daunting. It is when the fundamental rights apparently demand more substantial reforms of the law, such as the creation of new causes of action, or a significant change to the ground rules of a claim, that the full challenge of the proposal for alignment is appreciated. The best known example of fundamental rights forcing a reform of the law in the UK occurred in the case 22

CFREU Art 38. Farley v Skinner [2001] UKHL 49, [2002] 2 AC 732. 24 Burgschaft, BVerfG 19 October 1993, BVerf 89, 214. 25 Michael v Chief Constables of South Wales and Gwent [2015] UKSC 2, [2015] 1 AC 1732 [127]. 23

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of the development of the law of privacy in Campbell v MGN Ltd.26 The House of Lords was in broad agreement that, in the light of the development of the right to privacy in the jurisprudence of the European Court of Human Rights (ECtHR), English law protecting the privacy of individuals against intrusive journalism needed to be enhanced by the development of a tort of misuse of private information, although the new or modified tort would have to be subject to important limits in the public interest and freedom of the press. The Campbell case might have been decided in the same way even without reference to the ECHR, for there was a widespread view that English law needed to afford better protection against press intrusion. But such an appetite for radical change is not present in other fields, even though it seems possible that fundamental rights may require a reconsideration of the basic rules of liability. Consider, for instance, the law of nuisance and whether it is compatible with the full meaning of the right to respect for the home in Article 8 of the ECHR. According to the ECtHR, the right to respect for a home includes interests in the secure enjoyment of that living space and having it kept free from environmental disturbances. Before the UK courts, there have been a number of cases where claims have been brought against public authorities both in nuisance at common law and simultaneously under the HRA and Article 8 ECHR.27 Although the results have, so far, been broadly the same no matter how the claim has been advanced, it is evident that there are two potential differences: a claim under the HRA for an interference with enjoyment of private life does not have to be brought by a person with an interest in land; and secondly, nor does the claim for injury or loss under the HRA have to concern a diminution in the value of the land, but might also concern discomfort or loss of amenity for the individual. These differences raise questions about the alignment of the law of nuisance with fundamental rights in the sort of situation that arose in Hunter v Canary Wharf Ltd,28 where high-rise buildings blocked reception of television signals. The question is whether it might be possible for a person without an interest in land, such as a resident in a home for the elderly, to claim damages for loss of TV reception owing to the building of skyscrapers nearby by private companies? If this claim is currently outside the HRA because the defendant is not a public authority, the question arises whether it might be possible to modify the tort of nuisance in order to overcome the objections that the resident does not have an interest in land and that there is no diminution in the value of the land. In this example, relevant Convention rights might include not only Article 8, but also Article 10, freedom of expression, which also includes a right to receive information. The potential relevance of Article 10 was recognised in a landlord and tenant case in Germany, where the landlord tried to use contractual rights to prevent the tenant from putting up a satellite dish, but these rights were thought to be inconsistent with the Turkish tenant’s right to access the news media in his own language under Article 10.29 As suggested by Lord Cooke in Hunter v Canary Wharf,30 could the tort of nuisance be extended to protect members of the family and residents without 26 Campbell (n 2); G Phillipson, ‘Privacy: the Development of Breach of Confidence—the Clearest Case of Horizontal Effect?’ in Hoffman (n 1) 136. 27 D Nolan, ‘Nuisance’ in Hoffman (n 1) 165; Marcic v Thames Water Utilities Ltd [2003] UKHL 66, [2004] 2 AC 42; Dennis v Ministry of Defence [2003] EWHC 793 (QB), [2003] Env LR 34; Andrews v Reading BC [2005] EWHC 256 (QB). 28 Hunter v Canary Wharf Ltd [1997] AC 655 (HL). 29 BVerfG 9 February 1994, BVerfGE 90, 27 (Parabolantenna), discussed in Cherednychencko (n 17). 30 Hunter (n 28) 714.

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proprietary rights, such as a fan of television soaps in a care home for the elderly? Or might there be the need to create a new tort, the tort of interference with enjoyment of the amenities of a home? Or will the common law judges insist that the denial of a claim in such cases represents a fair balance of rights between neighbours? And would the damages in such a new tort include compensation for non-pecuniary loss, including distress, frustration, inconvenience, humiliation, and anxiety, since the ECtHR has occasionally awarded modest sums under those headings? Although these are complex questions, much like the novel protection against the misuse of private information developed in Campbell v MGN in response to the right to privacy, it seems just possible that, under the influence of fundamental rights, the tort of nuisance might be extended to protect interests of non-proprietary residents that do not concern diminution in the value of land. Such an evolution in the common law would represent a seismic shift in the law of nuisance. The hypothetical therefore illustrates the potential disruption produced by the alignment of private law with fundamental rights.

B. A Redesign of Constitutional Architecture There is a second, deeper challenge presented by the proposal to apply fundamental rights to private law. It questions the existing layout of the main pillars of the architecture of a liberal legal system. The challenge is posed both to the traditional contrast between public law and private law, and to the autonomy of national legal systems. Since fundamental rights have traditionally been regarded as a part of public law or constitutional law, their introduction into private law raises questions about the distinction typically drawn between public law and private law. Leaving aside perhaps exaggerated fears about the imperialist tendencies of the public lawyers and human rights lawyers, the proposal to align private law with fundamental rights does appear to lead to the constitutionalisation of private law, in the sense that private law becomes subject to, and perhaps becomes regarded as being derived from, the constitution and its bill of rights. This constitutionalisation of private law has been labelled ‘the total constitution’,31 under which every legal dispute would be resolved ultimately by reference to fundamental rights. On this view, these fundamental rights represent the genetic endowment of the whole legal system, although the genes combine in different ways to address the various functions that the legal system must perform. In public law, the fundamental rights must both confer authority on the rulers but at the same time ensure that they respect the rights of individual citizens; in private law, the fundamental rights of all parties must be balanced against each other. Although there are functional differences between public and private law, the building blocks of the life of these two aspects of the legal system can be viewed as the same: a comprehensive statement of fundamental rights.32 The subsidiary challenge to traditional conceptions of liberal legal systems concerns their autonomy from other legal systems. Given that the sources of fundamental rights are often

31 M Kumm, ‘Who is Afraid of the Total Constitution? Constitutional Rights as Principles and the Constitutionalization of Private Law’ (2006) 7 German Law Journal 341. 32 A Barak, ‘Constitutional Human Rights and Private Law’, in Friedmann and Barak-Erez (n 1) 21–22.

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found in international conventions, the application of fundamental rights to private law even seems destined to undermine the conventional distinction drawn, at least in common law systems, between national and international law. Although observance of international fundamental rights in all issues arising within a domestic legal system does not compel a monist approach that regards all international law as directly applicable national law, it would require a recognition of the supremacy of international fundamental rights law. Until recently, the UK legal system has been edging close to that position by both slavishly following decisions of the ECtHR in Strasbourg, and accepting fully the claims of the CJEU in Luxembourg to the supremacy of EU law, including the CFREU. In the last couple of years, there have been signs of a more nuanced approach emerging, in which there is respect for the decisions of these courts whilst preserving some discretion to make an autonomous judgment, within a margin of appreciation, about the application of the relevant fundamental rights within UK law.33

C. Revising the Liberal Order of Duty-Bearers A third challenge presented by the application of fundamental rights to private law concerns the issue of who can be a duty-bearer with respect to fundamental rights. In the context of public law, the individual or citizen is the holder of the right, and the duty-bearer − the entity required to respect and uphold the fundamental right—is invariably an organ of the state. In the context of a private law dispute, in contrast, although the individual or citizen remains a right-holder, the alleged duty-bearer is at first sight another individual, or legal person. It follows that the application of fundamental rights to private law must increase the duties of private legal persons by requiring them to uphold and respect rights that hitherto were only exercisable against the state, but now can be exercised against other individuals, thereby potentially interfering with their freedom or autonomy. Moreover, unlike organs of the state, this individual duty-bearer, like any other person or private organisation, is also simultaneously a right-holder. The freedom that is being curtailed is protected by the rights of the duty-bearer, such as rights to freedom of expression and freedom of association. The imposition of a duty to respect another’s rights will inevitably involve a curtailment of the duty-bearer’s rights to freedom and autonomy. In a dispute involving two private parties, both sides will enjoy fundamental rights, but if those rights are applied to private disputes, both parties will also be duty-bearers. Unlike the orientation in public law that typically treats fundamental rights as trumping arguments in order to control abuse of state power, the role of rights in private law is much more likely to be one of questioning the existing delicate balance struck by private law between rights, interests, and public policy. This mirror image of rights and duties on both sides forms the basic structure of disputes that arise in the context of the application of fundamental rights to private law. The courts implicitly acknowledge this framework by the application of some kind of balancing test. In such a context, a judge will typically say that the law requires that the rights of one party must be balanced against those of the other. That metaphor of balancing simplifies what is

33

Kennedy v Charity Commissioners [2014] UKSC 20, [2015] 1 AC 455 [46]–[47] (Lord Mance).

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a more complex underlying process.34 The balancing must involve weighing up one right and the correlative duty placed on the other party against the right enjoyed by the other party and its correlative duty. Each party may be able to invoke several rights. A court must evaluate the relative importance of all those rights, but also assess the degree of infringement on liberty caused by an application of the correlative duty. For example, if a newspaper plans to publish a story that reveals a celebrity’s falsehoods and hypocrisy, the celebrity may want to assert a right to privacy that must be weighed against the newspaper’s freedom of expression and freedom of the press. Those rights also imply a correlative legal duty: the newspaper would have to refrain from publication if the right to privacy is deemed of greater weight and the interference with freedom of expression is regarded as proportionate; or, alternatively, the celebrity would have a duty to put up with (or no power to stop) the newspaper’s freedom of expression, if that was judged to be of greater weight, and the infringement of privacy proportionate to the public interest in news. Whilst that need for balancing is a correct assessment of how fundamental rights will impact on private law, the issue that is both crucial and often not explicitly interrogated is whether a private individual should be a duty-bearer at all. For instance, if one person refuses to enter a contract with another simply on the basis of the other’s religion, we could speak of the need to balance one person’s freedom of contract against another’s freedom of religion. That may be a hard balance to strike, and the relative weight of those rights might vary according to the context, as for instance where the members of that religion have been a persecuted minority. But there is a deeper issue in addition, which is that we need to consider whether it is appropriate to restrict freedom of contract at all for the sake of upholding the fundamental rights of others. It is only once the duty has been imposed that the balancing of the competing rights can take place. The imposition of a duty on every individual to observe, and perhaps protect, fundamental rights seems to represent a significant change in standard liberal accounts of the relation between citizens. That traditional account grants considerable negative liberty in the sense that it says we can live our lives as we wish, provided that we do not harm others in various material ways. If we are required to behave in ways that respect the fundamental rights of others, we will be held to more perfectionist standards. For instance, if an atheist, gay shopkeeper decides to restrict all his dealings in the workplace, the marketplace, and in friendship to similarly minded, anti-religious gay or lesbian people, it could be said that he is not fully respecting the freedom of others to manifest their religion, or their right to respect for private life. He may not be interfering directly with their manifestation of religion or their private life, but by excluding them from any social or economic contacts, he is treating religiously minded heterosexuals unequally and with diminished respect. In the past, whereas the state could not behave in such a way consistently with its duty to respect the fundamental rights of citizens, liberal states would have permitted this conduct by individuals acting in a private capacity. As Lady Hale has observed: ‘The general rule is that suppliers of goods and services are allowed to pick and choose their customers’.35 The

34 Re: S (FC) (Identity: Restrictions on Publication) [2004] UKHL 47, [2005] 1 AC 593 [17]; A Local Authority v W [2005] EWHC 1564 (Fam). See, on the theory of double proportionality: H Collins, ‘On the (In)compatibility of Human Rights Discourse and Private Law’ in Micklitz, Constitutionalization (n 15) 26, 49. 35 Bull and Bull v Hall and Preddy [2013] UKSC 73, [2013] 1 WLR 3741 [2].

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question is whether, today, as fundamental rights influence private law, a gay atheist would be permitted to discriminate against religious heterosexuals in every sphere of social interaction, from the market to the family. In the context of anti-discrimination law, the state is not the sole duty-bearer. Other, private duty-bearers have been carefully identified by the legislation. The duties to refrain from discrimination on one of the prohibited grounds are usually imposed on employers, landlords, and businesses selling goods and services to the public.36 The duties are therefore asymmetrical: an employer cannot discriminate against women employees, but women can choose not to work for an employer solely because that employer is a man. Similarly, a shopkeeper cannot refuse to serve a consumer on the ground of ethnicity or religion, but a consumer can decline to purchase goods from a shopkeeper of a particular ethnic background or religion. The selective, asymmetrical allocation of duties with respect to antidiscrimination law is probably guided by a number of considerations, such as the practical power of those individuals and organisations to reduce group disadvantage and to open up valuable opportunities. Khaitan also suggests that the duty-bearers in discrimination law are acting in a quasi-public character, so that, like the state, they should be bound by similar duties.37 There may be a problem of circularity here: employers and landlords are duty-holders because they are acting in a quasi-public way in the market, and possibly the way we can tell that they are acting in a quasi-public manner is by observing that they are subject to various public duties, including anti-discrimination law. Whatever the correct explanation for the allocation of duties in relation to discrimination law, however, what is plain is that the duties are not imposed universally on everyone all the time. The main reason for the absence of a universal duty must surely be respect for the liberty of the individual, together with respect for the privacy of certain kinds of intimate associations, such as families and friends. Unlike the law of discrimination, the project for the alignment of private law with fundamental rights presents no obvious candidates for restrictions on who may be selected as duty-bearers. On the contrary, the spirit of private law contains a strong presumption that the rights and duties should be enjoyed universally and equally. That principle of universality is possibly derived from ideas of the rule of law and the principle of equal protection of the laws or formal equality. It follows, therefore, on this principle of universality, that, just as the shopkeeper or employer may be under an obligation to act in a way that respects a customer’s or an employee’s fundamental rights, so too the customer or the employee should equally be under a duty to respect the fundamental rights of the shopkeeper, or the employer. On the other hand, as we have noted, private law has traditionally regarded fundamental rights as being only applicable to relations between the citizen and the state, so the traditional, contradictory view is that no citizen should be a duty-bearer; neither employers, nor employees; neither landlords, nor tenants. Unlike the law on discrimination, where a middle ground has been carved out by the legislature, for fundamental rights more generally there appears to be no clearly defined centre where some, but not all, private individuals and organisations are subject to fundamental rights.

36 The principal fields covered by the Equality Act 2010 (UK) are the supply of goods and services, the supply of accommodation, employment, education and associations such clubs and trade unions. 37 T Khaitan, A Theory of Discrimination Law (Oxford, Oxford University Press, 2015) 210.

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The case law regarding the eviction of tenants illustrates the problem of defining the extent of duty-bearers of fundamental rights. Originally, the courts in the UK were reluctant to acknowledge that Article 8 of the ECHR, containing the right to respect for private life and the home, could have any bearing on a landlord’s power to evict a tenant who was in breach of a lease for failure to pay rent. That insulation of private law contractual rights from Convention rights was eventually demolished by a series of decisions of the ECtHR concerning public authority landlords.38 So now the courts in the UK accept that a public authority landlord must act in a way that respects the Article 8 rights of the tenant. This requirement may mean that, although the local authority is entitled under the lease to evict the tenant, it should nevertheless refrain from so doing in the particular circumstances of the case because that would be a disproportionate interference with the tenant’s Convention right.39 But what should happen when the landlord, who is trying to evict the tenant, happens to be a private landlord? Can a private landlord be regarded as a duty-bearer, and if so, should the court assess the proportionality of the interference with Convention rights in such a purely private case? The Supreme Court of the UK recently addressed the issue in McDonald v McDonald.40 The Court was reluctant to acknowledge that private landlords could be duty-bearers with respect to Convention rights. It conceded, however, that decisions of courts that in effect order an interference with the Convention rights of tenants, as in the case of an eviction from a home, would have to comply with the Convention.41 The Supreme Court held, however, that a court asked to make an eviction order was not obliged to carry out a proportionality test in the same way as the Convention required with respect to public sector landlords. Instead, a court should assume that the proportionality of the eviction was fully assessed by the application of a combination of the detailed statutory framework that regulated the eviction process of private tenants and of the contractual agreement that protected the property right of the landlord. This immunity of the eviction process from any further assessment on the ground of proportionality was upheld even in the context of this particular case that concerned a disabled and mentally unwell person whose psychiatric condition would probably be worsened by eviction and for whom it would be extremely difficult to find alternative accommodation. The Court insisted that Parliament had balanced the conflicting rights at stake, namely the right to enjoyment of possessions of the landlord and the right to respect for private life and a home for the tenant, and had confirmed on many occasions that the appropriate legal process for eviction should comprise solely a formal giving of notice. The Court was reluctant to require a more substantive assessment of the adequacy of the protection of the interests of the tenant, for Parliament and successive governments had enacted the straightforward mandatory formal procedure to reverse a decline in the availability of private rented accommodation. Even so, is this an adequate justification for the proposition that private landlords should not be regarded as duty-bearers with respect to the fundamental rights of their tenants? The puzzle becomes deeper once it is recalled that private landlords are duty-bearers for the 38

Connors v United Kingdom (2004) 40 EHRR 189; McCann v United Kingdom (2008) 47 EHRR 40. Manchester CC v Pinnock [2010] UKSC 45, [2011] 2 AC 104. 40 McDonald v McDonald [2016] UKSC 28. 41 Citing Mustafa and Tarzbachi v Sweden (2008) 52 EHRR 24 (ECtHR). 39

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purposes of the law of discrimination.42 Their subjection to discrimination law recognises that they exercise considerable control over access to a vital aspect of well-being concerning the provision of shelter and a home, and that with that power should go a public responsibility to treat people equally. Similarly, it could be argued that private landlords should also be required to comply with some fundamental rights of their tenants such as respect for their privacy and their home when exercising the power to make people homeless through actions for repossession. The Supreme Court seems to acknowledge that Convention rights should influence the rights of private landlords indirectly by the requirement placed on courts to comply with Convention rights, but then deprives that concession of any substance in practice by its insistence that the statutory regime already provides whatever might be needed to satisfy a test of proportionality. Upholding the virtues of deference to a democratic legislature, and respect for the relative clarity and certainty of the statutory scheme, are certainly persuasive arguments,43 but they do not amount to an overwhelming case for preventing the application of fundamental rights to private landlords altogether, as opposed to expecting the test of proportionality to uphold the results of the statutory scheme almost invariably, as is the case with respect to public sector landlords in practice. One reason why fundamental rights should always remain available as a last resort, despite the presence of a detailed statutory scheme for protection of tenants, is that the universal character of fundamental rights must be adequately and proportionately protected against the relevant duty-bearer whether that person is a public or private entity. Legislation governing private landlords may, or may not, conform to the demands of respect for the fundamental rights of tenants, so the possibility of challenging its adequacy should always be kept open. The third challenge posed by the constitutionalisation of private law is to provide a coherent answer to the question of who should be duty-bearers in respect of fundamental rights. If private individuals and organisations are excluded altogether, we need to understand how, nevertheless, the legal system will provide appropriate and proportionate protection for fundamental rights. If private individuals and organisations are included and treated exactly the same as organs of the state, we need to question whether such a regime adequately respects the liberty and autonomy of individuals. If a dividing line is drawn between different kinds of private individuals and organisations, establishing some as dutybearers and others as enjoying immunity from the application of the law of fundamental rights, a justification for that division of responsibility will be required.

III. The Response of Indirect Effect In response to the above three challenges, it is usually suggested that the problems are far less serious than might be supposed, because in practice, in relation to private law, the courts will invariably use the method of indirect horizontal effect. Under this method, a court will not use a fundamental right as the source of a new directly enforceable private law claim. 42

Equality Act 2010 (UK), s 33. See, eg, G Ribeiro,‘The Effects of Fundamental Rights in Private Disputes’ in H Collins (ed) The Charter of Fundamental Rights and European Contract Law (Cambridge, Intersentia, forthcoming). 43

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Instead, the role of fundamental rights is said to be merely that of guiding the interpretation of statutes and common law doctrines in directions that ensure their compatibility with fundamental rights. Under the model of indirect effect, the claim brought before the courts is always one grounded in established private law rules such as contract and tort. The only difference is that a court, when interpreting the existing law, will have regard to the rights and principles contained in applicable bills of rights. Under this model of indirect effect, fundamental rights present more of a nudge to private law rather than a requirement for a fundamental reconstruction or revision. Therefore, the method of indirect effect apparently provides a convincing response to the three challenges described above in the following ways. With regard to the challenge that the requirements of alignment with fundamental rights will be disruptive to the establish rules and principles of private law, the main point that can be made in favour of indirect effect is that, in principle, this method does not permit the creation of new causes of action, but merely steers the evolution of existing causes of action. This evolutionary process in the doctrines of private law can be entirely normal in judge-made common law, as the courts slowly adjust the rules to new social conditions. But the method of indirect effect does not permit the rewriting of legislation to mean the opposite of what it says, nor does it allow the courts to create new causes of action where there were none at all before. That red line over which the courts must not step apparently minimises the risk of any serious disruption to private law resulting from the process of aligning private law to fundamental rights. With respect to the second challenge, the worry about the reconfiguration or destruction of the distinction between public and private law, the method of indirect effect suggests that it is possible to preserve a sharp boundary between public law and private law. On this view, fundamental rights never really enter the domain of private law at all. Instead, what happens is that the courts, as a public body, have to act in conformity with fundamental rights. To comply with that imperative, the courts must not only comply with procedural requirements, such as the right to a fair trial, but also must ensure that their interpretations of the law conform to the requirements of fundamental rights. In the context of the UK, the one exception to that requirement is when Parliament has enacted primary legislation that, owing to its explicit language, prevents an interpretation of the law that is compatible with fundamental rights. But that exception may not apply in other jurisdictions, and does not apply to the interpretation of EU law. The courts are therefore under a duty in public law to ensure that their decisions are in conformity with the Convention rights, but the fundamental rights are never really applied to private individuals. That point also answers the challenge regarding private citizens as duty-bearers with respect to fundamental rights. Unlike under discrimination legislation, where employers and landlords are clearly duty-bearers, according to the theory of the indirect effect of fundamental rights, these individuals and private organisations are never subject to a duty to respect fundamental rights. Their only duty is to comply with private law. Under this model of indirect effect, courts are the only duty-bearers. The presence of fundamental rights in the architecture of a legal system may influence the content of those private law rights and duties in a weak manner, because the courts have to pay attention to them in carrying out their functions, but, under the principles of indirect effect, ordinary citizens and private organisations will never be duty-bearers at all with respect to fundamental rights.

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In summary, advocates of the method of indirect effect maintain that the second and third challenges apparently presented by fundamental rights to private law are wholly misconceived, and that although there is a marginal risk of disruption to established doctrines of private law by requiring alignment with fundamental rights, this risk is exaggerated, because the courts will never be permitted to make significant changes in the law. In theory, therefore, the method of indirect effect promises a comprehensive answer to any concerns about the constitutionalisation of private law. Unfortunately, as will now be shown, on closer inspection it becomes apparent that the method of indirect effect in practice cannot offer more comfort than a fig leaf.

IV. Indirect Effect in Practice Although these responses that rely on the method of indirect effect in theory answer the challenges posed by the proposal require private law to be compatible with fundamental rights, a closer examination of judicial practice begins to cast doubt on their adequacy. The central issue to be considered here is whether the use of interpretive techniques to adjust private law is really so different from making fundamental rights directly applicable in horizontal relationships between private parties. In accordance with the analysis presented by Alison Young,44 it is evident that there are many shades of the interpretive techniques known as the method of indirect effect; only the weakest versions of that method provide a convincing response to the three challenges posed by the constitutionalisation of private law. The problem emerges, however, that the practice of the courts in the United Kingdom has not confined the application of fundamental rights to an extremely weak method of indirect effect. Instead, an examination of judicial practices tends to support the application of a very strong version of indirect effect under which the results, and even the reasoning, are hard to distinguish from a practice of making fundamental rights directly effective against private parties. It is not my claim, of course, that in practice the process of alignment between fundamental rights and private law regularly disrupts the doctrines of private law. On the contrary, it is evident in the United Kingdom, as in many other countries, that, in general, conformity with the Convention is no more than an additional reason for reaching the same conclusion that would have been reached independently, on other grounds that are already provided by private law.45 On several occasions, the UK Supreme Court has even robustly declined to permit the tort of negligence to expand in response to persuasive arguments for the need to protect fundamental rights, on the principal ground that the existing law of tort provides a fair balance of interests.46 My point is rather that the sharp, theoretical contrast between the direct and indirect effect of fundamental rights blurs and almost vanishes completely in

44 For an exploration of the different strengths of indirect effect, see A Young, ‘Mapping Horizontal Effect’ in Hoffman (n 1) 16. 45 See, eg, Ashworth v The Royal National Theatre [2014] EWHC 1176 (QB). 46 Smith v Chief Constable of Sussex Police, heard jointly with Van Colle v Chief Constable of the Hertfordshire Police [2008] UKHL 50, [2009] 1 AC 225; Michael v Chief Constables of South Wales and Gwent [2015] UKSC 2.

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practice, so that it is not possible to distinguish one from other in judicial reasoning. If that conclusion is correct, the actual experience of the method of indirect effect does not provide a convincing response to the challenges presented above by what has been described as the constitutionalisation of private law. To assess how the method of indirect effect operates in practice, we need to consider in turn judge-made private law, statutory private law and the interpretation of legal instruments.

A. Judge-made Private Law Consider again Campbell v MGN Ltd,47 the case where the House of Lords developed the law of breach of confidence to protect privacy. Although disagreeing about the precise result in the case, there was a consensus that the law protecting the privacy of individuals against intrusive journalism needed to be enhanced by the development of a tort of misuse of private information, although the tort would be subject to important limits in the public interest and freedom of the press in order to respect Article 10 of the ECHR. No member of the Court proposed that Article 8 of the ECHR could provide a direct cause of action in this context of litigation between private parties. On the other hand, the general thrust of the judgments was that the new tort of misuse of private information is no more than an elaboration of the requirements of Convention rights. Lord Nicholls suggested that ‘the values enshrined in Articles 8 and 10 are now part of the cause of action for breach of confidence’.48 Apart from Lord Hoffmann, the Court proceeded to decide the case by means of a careful balancing of Articles 8 and 10. In the words of Lady Hale: ‘The position we have reached is that the exercise of balancing Article 8 and Article 10 may begin when the person publishing the information knows or ought to know that there is a reasonable expectation that the information in question will be kept confidential.’49 In other words, the majority decided the case in exactly the same way as if the Convention rights were directly applicable. This decision illustrates the paper-thin distinction between direct and indirect effect in judge-made common law. Indeed, in my view, it is possible to argue more emphatically and controversially that the entire concept of indirect effect makes no sense at all in the context of the judge-made common law. Indirect effect is a concept created by civil lawyers to understand how their constitutions and international commitments might affect the proper interpretation of the civil code. Their constitutions usually require judges to apply both the civil code and relevant fundamental rights. If there is a tension, it can be resolved by an interpretation of the general phrases of the civil code by reference to the protected fundamental rights. In that way, the doctrine of indirect effect preserves the niceties of the constitutional framework in codified systems of private law. In contrast, with respect to judge-made common law, the rules and principles do not have a single authoritative status, or a fixed linguistic statement. It does not make much sense in this context to attempt to draw a distinction between

47 Campbell (n 2); G Phillipson, ‘Privacy: The Development of Breach of Confidence—the Clearest Case of Horizontal Effect?’ in Hoffman (n 1) 136. 48 Campbell (n 2) [17]. 49 ibid [132].

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interpreting the law expansively and creating a new claim. In Donoghue v Stevenson,50 for instance, did Lord Atkin create a new cause of action, or merely expand an existing one? In his judgment, Lord Atkin explained that he was building on the precedents, but he may not have been deeply concerned whether his judgment merely extended an existing set of principles, or created a new principle. Similarly, it seems to me that members of the House of Lords in Campbell were not especially rigorous on the point whether they were merely giving indirect effect to fundamental rights by expanding an existing cause of action, or engaged in giving direct effect to fundamental rights by creating a new cause of action. It was not a matter of concern because, if needs be, the common law judges have the authority to create a new cause of action, so the civil law constitutional niceties regarding the separation of powers are not really significant in the context of the common law. Although the theory of indirect effect encouraged the court to present the result in terms of the development of an existing cause of action, what undermines that presentation of the legal reasoning is the conclusion of the majority that the content of the tort was defined solely by a balancing exercise between two Convention rights. If it is correct that the distinction between direct and indirect effect cannot be clearly observed when judges develop private law in common law systems, it follows that the purported response to the three challenges described earlier using a theory of the method of indirect effect is less convincing. Alignment of private law with fundamental rights might be achieved by the creation of a new cause of action, as may have been the case in Campbell, without the court even noticing that it had crossed this theoretical line between direct and indirect effect. If so, the attempt to preserve the distinction between public law and private law by reference to the method of indirect effect is also less convincing. Nor can it be credibly claimed that the judgment did not make the defendant newspaper a duty-bearer to the fundamental right to respect private life. Because the ingredients of the tort of misuse of information are constituted by the scope and balancing of the fundamental rights, the legal duty imposed on the private company is the same as a directly applicable duty in similar circumstances placed upon an agency of the state.

B. Statutory Private Law The distinction between direct and indirect effect becomes even fuzzier when we turn to an examination of statutory private law. As in many other jurisdictions, a court in the UK will be obliged to interpret legislation in a way that is compatible with Convention rights (or if EU law, Charter rights), if at all possible. In the UK law of unfair dismissal, for instance, it has been accepted that the statutory question of the fairness or reasonableness of an employee’s dismissal must be influenced by considerations of Convention rights.51 In general, it does not appear reasonable for an employer to conduct itself in a manner that involves a disproportionate interference with Convention rights. For example, if the employer has dismissed someone for reasons connected to the employee’s off-duty conduct, such as lifestyle or political associations,52 the reasonableness of the dismissal will 50 51

Donoghue v Stevenson [1932] UKHL 100, [1932] AC 562. X v Y [2004] EWCA Civ 662, [2004] ICR 1634. Redfearn v UK (2013) 57 EHRR 2, [2013] IRLR 51.

52 ibid;

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have to be assessed in a way that conforms to the protections for respect for private life and freedom of speech. For the most part, the English courts and tribunals have concluded that the challenged dismissal was reasonable in the circumstances, because the employer’s interest in protecting its organisational objectives, or its reputation, was a sufficient reason to outweigh any interference with the fundamental rights of the employee. In Crisp v Apple,53 for instance, the employer successfully defended the fairness of the dismissal, despite its infringement of the right to freedom of expression, when the employee, who worked at an Apple store selling the company’s products, posted messages on a social media site saying that he thought that his iPhone was rubbish. Despite the regular failure of such claims by employees under the UK law of unfair dismissal, it is evident that the statutory standard of reasonableness has been supplemented by a gloss, which states that when directing or disciplining employees, an employer should not commit a disproportionate interference with a Convention right under the ECHR. The puzzling question is whether this new rule is merely an interpretation of the statutory standard of reasonableness, or does it constitute the use of Convention rights to impose a new legal requirement on employers? That boundary between indirect and direct effect scarcely seems to matter in practice because, on either view, the outcome will be the same: a private employer has to conform to the requirements of fundamental rights when dismissing and disciplining employees. The same question can be posed with respect to the jurisprudence of the CJEU. As we have previously noted, under the EU Treaties, the CJEU and national courts must ensure that their interpretations of Directives, including those creating rights between private parties, should conform to the rights and principles of the Charter Rights. In EU countries and the wider European Economic Area, most of the legal framework for consumer law has a foundation in EU law, with the consequence that Charter rights can play a part in the interpretation of those Directives and the national legislation that implements those consumer protections. We have already noted how the CJEU has used the rights to a fair trial, an effective remedy for civil rights, and respect for the home, to require national procedures to address those human rights issues in a timely manner before permitting a repossession of a person’s home.54 A particularly striking example of this strong indirect effect of fundamental rights under EU law occurred in Alemo-Herron and others v Parkwood Leisure Ltd.55 The social right to a freedom to run your own business was regarded by the CJEU as a strong endorsement of freedom of contract, so the Court favoured an interpretation of the relevant Directive that preferred the employer’s freedom of contract to negotiate new terms and conditions of employment after the acquisition of a business, over the workers’ rights under the Directive to keep their existing terms and conditions of employment, despite the change in the identity of their employer.56 It is fair to say that this was a hard case, because the terms of employment apparently bound the new private sector employer to continue to offer the same terms and conditions as those negotiated between public sector employers and their recognised trade unions indefinitely, even though the employer was not able to participate in those negotiations. Even so, the Directive states in Article 3 that

53

Crisp v Apple Retail (UK) Ltd ET/1500258/11 (unreported, 22 November 2011). Case C-34/13 Kusionova v SMART Capital a s (2014). 55 Case C-426/11 Alemo-Herron and others v Parkwood Leisure Ltd [2014] 1 CMLR 21, [2013] ICR 1116 (CJEU). 56 Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/349, implementing irective 2001/23/EC. D 54

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employees are entitled to keep their existing terms of employment, so, at the very least, if the employer had wished to vary those terms, it would normally have been required to offer some compensation to the workers for violating their statutory right. Instead, by invoking the Charter right to the freedom to run your own business, the CJEU released the employer from having to pay compensation. Despite the fairly clear wording of the Directive to the opposite effect, the Court seems to have invoked the Charter right and given it in practice something tantamount to direct effect, because it is hard to pretend that this decision was merely an interpretation of the Directive when the outcome contradicts the plain meaning of the legislation. In this context of statutory private law, it is hard to resist the conclusion that the obligation placed on courts to interpret legislation in a manner that is compatible with fundamental rights in effect requires courts to apply those rights directly to the case before them. In so far as the application of fundamental rights to the dispute calls into question the most obvious meaning of the legislation, the process of balancing the competing rights will then determine the outcome of the dispute.

C. Interpretation of Legal Instruments A similar, strong interpretive approach seems also to have been applied to the interpretation of a will by the ECtHR in Pla Puncernau v Andorra.57 The precise question was whether it would be appropriate to interpret a will in accordance with its prima facie, meaning that would permit the testator to discriminate against adopted children. If so, distant cousins would inherit the property, rather than a grandson who had been adopted. Having lost his case before Andorra’s High Court, the adopted grandson took his case to Strasbourg, where the ECtHR was divided. The majority held that both Article 8 (the right to respect for private and family life) and Article 14 were engaged. The Court held that the Andorran High Court’s interpretation of the will had a discriminatory effect against adopted children, contrary to Article 14. The will should therefore be interpreted so that it granted a bequest to an adopted son in order to avoid that discriminatory effect. In this decision, the majority of the Court seems to have blended the two principal techniques of indirect effect. They used the indirect effect method of approach towards legislation, although extending its application to any legal instrument, so that a court is required, so far as possible, to reach interpretations that are compatible with Convention rights. In order to explain the reason why this approach applied to a will (and presumably a contract as well), the majority treated the enforcement of a will by a court or an agency of the state as a kind of public act, just as in cases where a court interprets a statute. The Court stated that it is entitled to intervene when a national court’s interpretation of either laws or private legal instruments such as contracts is ‘blatantly inconsistent’ with the prohibition against discrimination in Article 14 and ‘the principles underlying the Convention’.58 The judges in the minority of the ECtHR raised some predictable criticisms against this decision. The criticisms can be reframed within the argument of this chapter. In the first place, the minority doubted whether this interpretation of the will really conformed to 57 58

Pla and Puncernau v Andorra (2006) 42 EHRR 25. ibid [59].

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the method of indirect effect, because it seemed to permit the rewriting of the meaning of the will to the exact opposite of what the grandmother probably intended. Moreover, the minority questioned whether the maker of a testamentary disposition should be treated as a duty-bearer under human rights law or constitutional law. Save in exceptional circumstances, the minority of the Court insisted that, when making their wills, individuals should be given the freedom to distribute their possessions as they wish. In making these critical assertions, judges in the minority are apparently expressing the concern that the Court in this case is imposing a new rule on all private relationships, to the effect that all legally enforceable documents must conform to the high standards of the European Convention of Human Rights and, in so far as it may be possible, these instruments will be interpreted in that manner. In Pla Puncerno, the majority insisted that the will was ambiguous, or at least not absolutely clear, so an alternative, Convention-compliant interpretation was available. But what should happen when, in view of the express and detailed literal meaning of the instrument, it is not possible to interpret it in a manner that conforms to Convention rights? That problem possibly arose in the High Court of England and Wales in Gregg v Pigott.59 The judge held that a testamentary trust made in 1948 was unambiguous and that it excluded adopted children when it used the phrase ‘statutory next of kin’, a phrase which had itself been defined by statute.60 The remaining question was whether the adopted children might nevertheless inherit by virtue of an interpretation of the trust deed that was compliant with contemporary interpretations of the ECHR. The judge applied such an interpretation that did not discriminate against adopted children, partly on the ground that the trust deed had not, in explicit terms, excluded adopted children, partly on the ground that the old statutory definition of ‘next of kin’ had long since been superseded by provisions that treated adopted children equally, and partly on the ground that no unfairness would result from such an interpretation because the adopted children had been integrated into the family for some 60 years, whereas the alternative beneficiaries were remote cousins whose identity was mostly unknown. The result of this case is that it remains possible for private parties to enter legal instruments such as contracts, trusts, and wills in which the legal rights and obligations are not compliant with Convention rights, but those rights and obligations will only be upheld and enforced if they are detailed and explicit, for otherwise a court is likely to prefer an interpretation that achieves a judicial decision that is compliant with the Convention. There remains a question whether a court might decline to enforce a legal instrument such as a contract, or declare it void, on the ground that it is contrary to public policy. It might be argued that it is contrary to the public interest for a court to lend its support to a private act that deliberately ignores or undermines fundamental rights. If a court refused to enforce a contract or a will on the ground that its provisions necessarily involved a discriminatory interference with Convention rights, the court would avoid any breach of its constitutional duty to act in conformity with Convention rights. Unfortunately, that refusal to enforce the legal instrument might unpredictably lead to consequences that harm the person whose fundamental rights are at stake, such as the adopted children in Gregg v Pigott. 59 60

Gregg v Piggott [2012] EWHC 732 (Ch). ibid [21], [53].

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In these cases concerning legal instruments, the courts have resolutely insisted that private persons are not duty-bearers and that they retain the freedom to make dispositions that are not in line with Convention rights, and which it would be impermissible for public authorities to adopt. Yet, at the same time, the courts have demonstrated a fertile ability to ensure that their interpretations of private legal instruments are consistent with relevant Convention rights and the principles underlying the Convention. In the absence of detailed and explicit terminology to the contrary, there is a presumption that interpretations of private instruments will conform to Convention rights. In such cases, the rejection of direct effect in horizontal relations is apparent in the insistence that private individuals are not duty-bearers when they consent to such legal instruments. Yet this indirect effect achieved by interpretation is extremely strong, perhaps even stronger than that applicable to interpretations of primary legislation, for courts are plainly not concerned to give effect to the actual intentions of the original creator of the instrument if those intentions were not in tune with the principles underlying the Convention.

V. Conclusion My main conclusion is, therefore, that the theoretical contrast between direct and indirect effect tends to melt away like ice in a cocktail once one examines closely the practice of the courts with respect to the interpretive devices used under the label of indirect effect. In relation to the judge-made common law, my contention is that, in practice, it is not possible to distinguish direct and indirect effect and that the courts in the UK have made scant endeavours to do so, not perceiving this device as essential for the legitimacy of their decisions. With respect to statutory interpretation, the courts have shown a strong disposition to ensure that the interpretation is compatible with relevant fundamental rights, even if that effectively requires a rewriting of substantive or procedural rules regarding civil claims. A similar, activist approach to interpretation applies to the interpretation of legal instruments such as wills and contracts, although the courts have also explicitly denied that they are imposing direct horizontal effect by explicitly declining to label private individuals in such cases duty-bearers. If the contrast between the methods of direct and indirect horizontal effect is as flimsy in practice as has been argued here, it cannot provide any kind of robust response to the three challenges that were described in section II above. That leads us to the question of how deeply we should be concerned about the challenges presented by the constitutionalisation of private law. Provided the technique of subjecting existing doctrines of private law to the intense gaze of fundamental rights is not misused in extravagant ways, in my view this development in legal reasoning has the merit that it may permit ossified legal doctrines to be questioned, even if that reconsideration does not lead to change. In practice, looking across the whole field, the courts have usually avoided any radical challenges to the substance of private law. For example, the courts questioned whether the ancient common law doctrine of adverse possession, which permits a taking of another’s real property without compensation, could be adequately justified, even when the taking had been in bad faith, and, perhaps surprisingly, concluded that it was compatible

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with the ECHR.61 In so far as appeals to fundamental rights have succeeded in requiring changes to private law, those alterations have usually been modest. For instance, when the law of unfair dismissal had to be modified to construct for all employees a general right not to be dismissed for associating with political parties not favoured by the employer,62 the ECtHR made it clear that such a dismissal might still be justified if it was necessary to avoid conflict in the workplace, or to protect the business reputation of the employer. In my view, private lawyers should not be alarmed by the possibility that long-standing principles might be challenged from time to time by reference to fundamental rights. In most of these instances, the challenge was successfully resisted or narrowly confined. The advent of occasional tests of existing private law against the standards of fundamental rights to see if the rules are entirely sound provides judges with a welcome opportunity to reconsider first principles and perhaps to develop the law in beneficial directions. But even if the requirement to align private law with fundamental rights does unexpectedly provoke major shake-ups, there is a further reason to welcome those disturbances. As Ronald Dworkin argued, a conventional ‘rule-book’ view of the Rule of Law is that the law should be stable and predictable and that courts should therefore normally apply the rules, especially if those rules were produced by a democratic legislature.63 He contrasted that view with a substantive ‘rights model’ of the Rule of Law that requires that the law should always capture and enforce the moral rights of individual citizens.64 He accepted that ‘people have at least a strong prima facie moral right that courts enforce the rights that a representative legislature has enacted’.65 But he argued that where the law is uncertain or ambiguous, a ‘rights model’ of the Rule of Law insists that, in such a hard case, a court should try to ensure that its decision conforms to the moral rights of people. That argument supports the contention advanced here that, far from the process of alignment presenting a challenge to the Rule of Law because of its disruptive potential, it in fact promotes a substantive view of the Rule of Law, a rights model. Similarly, in my view, we should not be concerned about the inevitable breakdown of any sharp division between public law and private law. It was never a watertight distinction. Nor has it been a distinction that has provided a source of principle, as opposed to supplying much that was useful in explaining the law and guiding appropriate legal procedures. Administrative law, for instance, does require different procedures from those used in private law, but that distinction provides no reason to think that fundamental rights might not be relevant to both parts of the law, although, of course, in accordance with different procedures and potential remedies. Equally, the occasional interrogation of national law by reference to consensus standards at the transnational or international level seems to me to serve the beneficial purpose of permitting arguments that suggest the need to modernise or refine national laws. The third challenge, namely the problem of identifying appropriate duty-bearers, is, however, more troublesome. We noted that discrimination laws have addressed this issue 61 J A Pye (Oxford) Ltd v UK (2006) 43 EHRR 3; reversed by Grand Chamber, J A Pye (Oxford) Ltd v UK (2007) 46 EHRR 1083. 62 Redfearn v UK (2013) 57 EHRR 2; H Collins and V Mantouvalou, ‘Redfearn v UK: Political Association and Dismissal’ (2013) 76 MLR 909. 63 R Dworkin, A Matter of Principle (Oxford, Clarendon Press, 1986) 9–11. 64 ibid 11–12. 65 ibid 16.

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by limiting the private persons and organisations that may be subject to the duties. The purpose of that restriction is that it permits private individuals acting as consumers and friends to continue with their preferences for contracts, whether or not they might be based on prejudice. Out of respect for liberty or autonomy, would a similar restriction on duty-holders be appropriate for the application of fundamental rights throughout private law? That limitation might mean, for instance, that only employers, landlords, hoteliers, and shopkeepers would be placed under a legal duty to respect the fundamental rights of employees, tenants, visitors and customers. John Gardner argued that the reason why private employers have direct duties under discrimination law is that such employers, like agencies of the state, are in a privileged position in the distributive mechanisms of society.66 Along these lines, Jean Thomas suggests that fundamental rights should only be applicable to relationships where there is a kind of dependency, either resulting from an employment relation or where the goods or services being provided are vital for well-being and hard to obtain otherwise.67 That principle would produce results similar to the current application of discrimination laws, although in her version it would not extend to the full scope of goods and services offered to the public. An alternative approach could be to assume that fundamental rights apply to all private law relations, but then carve out a protected field of autonomy, in which the values of selfexpression and privacy are deemed to outweigh any concern for the fundamental rights of others, and therefore, within that circumscribed field, there would be no duty-bearers. Following John Gardner, we might describe that field as composed of ‘directive-sensitive’ relationships which depend for their meaning and value on spontaneity and self-expression.68 Friendships, relations between parents and child, and many aspects of the family might fall into this field and therefore enjoy an immunity against the imposition of fundamental rights. Of course, that protected field where fundamental rights are not permitted to intercede in private law relations could be defined more broadly than that suggestion, by reference to various criteria such as whether the defendant is a natural person, or a legal entity, the importance of the fundamental rights at stake, and the extent to which the private relationship has been established by voluntary consent. At present, the courts seem to insist that private individuals and organisations are not duty-bearers with respect to fundamental rights, but then, in an almost contradictory move, through interpretive techniques, the courts make it almost impossible for those individuals and organisations to effect private arrangements such as contracts that in fact unjustifiably interfere with fundamental rights. However this issue of the range of duty-bearers is ultimately resolved, it seems to be the hardest and most intractable challenge presented by the constitutionalisation of private law.

66

J Gardner, ‘Liberals and Unlawful Discrimination’ (1989) 9 OJLS 1, 11. J Thomas, Public Rights, Private Relations (Oxford, Oxford University Press, 2015) 229. 68 J Gardner, ‘Private Activities and Personal Autonomy: At the Margins of Anti-Discrimination Law’ in B Hepple and E Szyszczak (eds), Discrimination: The Limits of Law (London, Cassell, 1992) 148, 153. 67

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12 The Limits of Technocracy: Private Law’s Future in the Regulatory State TT ARVIND AND JOANNA GRAY

I. Private Law and the Regulatory Jurisdiction Since the late Victorian period, private law has been faced with the challenge of coming to terms with the altered context created by the burgeoning administrative state. This challenge has two dimensions. The first, far from straightforward, arises from the need to take note of the existence of rules, regulations, and policies made by administrative agencies in deciding the scope of a party’s rights and obligations. The courts are increasingly faced with actions arising out of heavily regulated relationships, in which their ability to deploy the traditional common law tests is necessarily coloured by the need to engage with the aims, goals, and policies underlying the relevant regulations, the majority of which are overtly systemic and consequentialist.1 As one of us has discussed in detail elsewhere, the response of the courts to this challenge has been complex, and has taken obligations doctrine in a direction which calls into question many of the theoretical assumptions that are taken for granted in contemporary private law scholarship.2 More serious, however, is the second dimension which arguably poses an existential challenge to private law, and is the primary subject of this chapter. For the transformation of the state in the course of this period has led to the creation of what is in effect a new jurisdiction—the regulatory jurisdiction— which actively intervenes in the very same relationships as private law, and which in intervening discharges the very same ‘law-jobs’3 as private law once did: structuring relations, resolving conflicting expectations, setting standards of conduct, and prescribing remedies

1

See generally WH Greenleaf, The British Political System: The Rise of Collectivism (London, Methuen, 1983). TT Arvind, ‘Obligations, Governance and Society: Bringing the State Back In’ in A Robertson and M Tilbury (eds), The Common Law of Obligations: Divergence and Unity (Oxford, Hart Publishing, 2016). 3 K Llewellyn, ‘The Normative, the Legal, and the Law-Jobs: The Problem of Juristic Method’ (1940) 49 Yale Law Journal 1355. 2

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when those standards are transgressed.4 And, if one steps out of the world of private law theory to study the operation of the legal system as a whole, it becomes rapidly evident that the general trend has been one of the diminution of private law: of its withdrawal from these law jobs in favour of the regulatory jurisdiction. Financial regulation provides a particularly clear example of this trend. In cases ranging from Derry v Peek5 to Caparo v Dickman6 and their counterparts elsewhere in the common law world,7 the courts have refused to involve themselves in the task of setting standards of the type whose elaboration is fundamental to the success of financial markets. Equally, in virtually every case, the withdrawal of private law has led to an expansion of regulation. After Caparo, it is clear that auditors owe no common law duties to investors. This does not mean, however, that they are free to behave as recklessly as they choose. It means, rather, that the issue of setting standards for the conduct of auditors has passed from the institutions of the common law to those of the regulatory state. And, in point of fact, regulators have intervened to formulate rules dealing with the precise problem at issue in Caparo, namely, that investors and capital markets suffer in consequence of the fact that auditors do not subject companies to sufficient scrutiny.8 The trend of the displacement of private law by the regulatory state has been discussed in detail elsewhere,9 and we do not propose to revisit it here. The question that this chapter explores is its implications for the future of private law. What role does private law have in a legal system increasingly dominated by regulatory institutions? Should private law respond in any way to its displacement by regulation? Does it have a wider role to play in common law legal systems, and if so what? In recent years, corrective justice theory has sought to provide a powerful answer to these questions: one which calls for private law to put a principled distance between itself and the world of regulation, and to shape a role for itself based on fidelity to the idea of private law as a philosophically coherent normative phenomenon.10 The essence of this coherence, in turn, is said to lie in the normative link between the parties to a private law action and, in particular, in the mission of private law to ‘subject the interactions between one person and another to a system of coherent norms that is fair to both.’11 On this account, the institutions of private law have their own ‘institutional character’ and ‘normative aspirations’12 which differ sharply from those of the regulatory state. The problem, therefore, is not so

4 For a fuller account of this argument, see TT Arvind, The Law of Obligations: A New Realist Approach (Cambridge, Cambridge University Press, forthcoming 2017). 5 Derry v Peek (1888) LR 14 App Cas 337 (HL). 6 Caparo Industries v Dickman [1990] 2 AC 605 (HL). 7 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; Hercules Managements Ltd v Ernst & Young [1997] 2 SCR 165. 8 See, eg, Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities [2014] OJ L158/77; and Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts [2014] OJ L158/196. 9 See, eg, M Lee, ‘Occupying the Field: Tort and Pre-emptive Statute’ in TT Arvind and J Steele (eds), Tort Law and the Legislature (Oxford, Hart Publishing, 2012). 10 In Weinrib’s famous phrase, ‘the purpose of private law is to be private law’. EJ Weinrib, The Idea of Private Law (Cambridge MA, Harvard University Press, 1995) 5. 11 EJ Weinrib, Corrective Justice (Oxford, Oxford University Press, 2012) 7. 12 ibid 8.

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much the displacement of private law by regulation, which may well be justifiable, as it is with private law taking on the colours of regulation by, for example, concerning itself with systemic issues, or conceding a central place to policy-based reasoning as it increasingly appears to be doing.13 Such matters should be left to regulators. Private law is better off concerning itself purely with issues of interpersonal justice, and with the relatively narrow and clearly-defined rights to which it has traditionally devoted itself.14 The difficulty with this argument is that, as recent developments have demonstrated, the regulatory state is as capable of providing interpersonal justice as are the institutions traditionally associated with private law. Financial mis-selling, utility overcharging, and a range of other civil wrongs are remedied by regulators not just with fines, but also orders to pay compensation and rules for the calculation of the quanta of compensation to be paid.15 If private law’s role is solely to provide corrective justice, then it is only a matter of time before the regulatory state dispenses with the need for much of private law. The very same issue arises if we move from theories grounded in corrective justice to those grounded in consequentialist outcomes, such as the economic theory of law: there is no reason organs of the administrative state cannot be structured in a way that supports the achieving of outcomes which are economically efficient, or which minimise transaction costs. A second possibility comes from trends within the judiciary itself, where there is a growing focus on the needs of complex, high-value litigation. Implicit in this approach is the view that courts have a particular skill at sorting through difficult facts, in situations characterised by an evidentiary trail that is both complex and voluminous. When they deal with facts, law, and contracts in a joined-up and binding manner, courts provide a vital service, for commerce needs a supervisory agency that works at the granular level of individual transaction, not just the system-as-aggregate. The courts, in this view, help to ‘provide the necessary environment, identified by Adam Smith, for economic activity to thrive’ by ‘providing a mechanism for authoritative guidance’.16 Much of the change to the civil justice system in the common law world has been driven by the need to enable the courts to discharge this function efficiently. These include, at the institutional level, the growing importance of case management, at the doctrinal level, the steady replacement of socially grounded tests such as the ‘man on the Clapham omnibus’

13 A Beever, ‘Policy in Private Law: An Admission of Failure’ (2006) 25 University of Queensland Law Journal 287. 14 See, eg, A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007); A Beever, The Law of Private Nuisance (Oxford, Hart Publishing, 2013). 15 J Gray, ‘The Legislative Basis of Systemic Review and Compensation for the Mis-Selling of Retail Financial Services and Products’ (2004) 25 Statute Law Review 196. The regulator’s use of this ‘mass compensation’ jurisdiction to effect industry-wide redress for mis-sold payment protection insurance policies was challenged unsuccessfully by the banking industry through judicial review in R (on the application of the British Bankers Association) v Financial Services Authority and another [2011] EWHC 999 (Admin). Financial regulators have also long been able to apply to court for compensation by way of restitution orders in the event a regulated firm has contravened relevant regulatory requirements causing losses to a number of ‘qualifying investors’. J Gray, ‘Regulatory Restitution under Financial Services Legislation’ (2004) 12 Restitution Law Review 52. For examples of the use of this type of jurisdiction, see, eg, Securities and Investments Board v Pantell SA and others (No 2) [1993] Ch 256. 16 Lord Thomas of Cwmgiedd, ‘Speech at the Dinner for Her Majesty’s Judges’ (Mansion House, London, 8 July 2015), www.judiciary.gov.uk/wp-content/uploads/2014/07/lcj-speech-mansion-house-dinner-for-hm-judges.pdf, 4. The Financial List of the Commercial Court was established by the Civil Procedure (Amendment No 4) Rules 2015, SI 2015/1569, and became operational on 1 October 2015.

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with approaches that are avowedly both pragmatic and technocratic, and at the procedural level the judicial push to create new forms of action to deal with emerging needs of highlevel transactors within the commercial system, most recently in the financial list and the new financial test case procedure for very high value matters,17 which the English courts are in the process of implementing. The strength of this trend makes it easy to ignore the marginalisation of private law within the legal system, particularly given the historical position of commercial law and commercial lawyers within the discipline of private law. But while this idea of private law has a clear niche and future, it is one which many would regard as impoverished. Is there, then, a case for a wider role for private law in the age of the regulatory state—one which extends beyond the narrow domain of providing a supportive environment for commercial and commercialised transactions? That is the question this chapter seeks to answer, by using the example of the regulation of the financial system. The central argument we seek to make by exploring this example is that a broader role for private law is not only possible, but arguably essential; and that this role lies not at the margins of the regulatory state but in domains that are at the heart of the modern system of regulation. Section II of this chapter begins by putting private law in the context of the regulatory state, and examining its role with reference not to doctrine and its methods but to regulatory theory. We take this approach not because doctrine does not matter, but because the regulatory state is here to stay, and any argument that seeks to articulate a case for taking private law’s role seriously will need to be put in terms that address the claims of the other side, namely, the regulatory state. And, as this chapter will demonstrate, when we do this, we discover that private law is intelligible and important not only as a doctrinal institution but also as a political institution, part of the structures through which a polity is governed. Section III puts this discussion in the context of financial markets, and argues that private law has a fundamental role to play in structuring and maintaining the institutional conditions for the existence of financial markets, in relation to which regulation cannot be a substitute. Section IV argues, however, that several features of modern private law, including core aspects of twentieth-century private law doctrine as well as the structure and priorities of the modern court system, place considerable hurdles in the way of actually achieving this contribution. Altering this position will require a fundamental shift in how we approach private law. Specifically, it will require us to move away from the traditional methodology of legal theory, of working ‘backward from the doctrines and institutions of private law to the most pervasive abstractions in it’,18 to a new approach that takes as its starting point the positive role that private law can play in the modern state, and which places that role at the heart of the process by which private law doctrines, rules, and processes are elaborated, extended and developed; and which is far more sensitive to the social and transactional contexts in which private law operates than legal scholarship or legal doctrine has traditionally been.

17 ibid. 18

Weinrib (n 11) 26.

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II. Technocracy and Private Law: Differentiating Two Models It is useful to begin by briefly sketching the main characteristics of the differences between private law and public regulation. The core of regulation lies in the notion of technocracy. It is important at this stage to clearly distinguish technocracy from the phenomenon of expert decision-making. Expert decision-making involves the making of judgments on the basis of individual expertise. Technocratic decision-making, in contrast, entails the making of decisions according to technical criteria. It is technocracy in this latter, more specialised, sense that lies at the heart of the modern regulatory state. In historical terms, this form of dispute resolution is a relative newcomer to the common law world. Its roots lie in the middle of the nineteenth century, with the slow expansion of the functions of administrative bodies into areas that we would today recognise as regulation, although they would not have been seen in those terms in their contemporary setting. The Alkali Acts Administration, which was one of the earliest examples of technocratic regulation, serve both as an excellent example of the thinking underlying technocratic regulation, and of the limitations of private law which made its rise necessary. The specific problem that prompted the creation of the Alkali Acts Administration was the problem of muratic acid gas, a by-product of alkali works which had a devastating impact on vegetation (and, hence, on farming). Although there was, in theory, a common law remedy in the form of the tort of nuisance, it did not, in practice, give much recourse: partly in consequence of the expence [sic] such actions occasion, partly from the fact that where several works are in immediate juxta position, the difficulty of tracing the damage to any one, or of apportioning it among several, is so great as to be all but insuperable; and, that even when verdicts have been obtained, and compensation, however inadequate, awarded, a discontinuance of the nuisance has not in most cases been the result.19

Contemporary testimony from individuals affected by the discharge of noxious vapours suggests that these issues were real: the costs of an action of nuisance often took up over half the sums actually recovered by way of compensation,20 and the compensation awarded fell far short of the loss actually suffered.21 This posed a genuine deterrent to litigation. Small proprietors adversely affected by noxious vapours ‘had not the courage to run the risk of an expenditure of 400 l or 500 l to recover perhaps 50 l’ even though they frequently had ‘suffered most grievously’.22 Where more than one factory was in the vicinity, the difficulty of proving causation led to actions not being commenced even when the damage was great.23 In contrast, the Alkali Acts Administration, which was headed by Robert Angus

19 Report from the Select Committee of the House of Lords on Injury from Noxious Vapours (London, House of Commons, 1862) v. 20 Minutes of Evidence Taken Before the Select Committee on Injury from Noxious Vapours (London, House of Commons, 1862) 7. 21 ibid 8. 22 ibid 8–9. 23 ibid 17.

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Smith, a celebrated sanitary chemist, successfully dealt with the problem by setting precise limits on emissions, initially set in terms of percentages and, when those proved inadequate, in terms of volumetric standards of grains per cubic foot.24 Equally, the fact that it was run by a respected scientist, and claimed its authority through the expertise of its personnel (many of whom had experience in the regulated industry), meant that it could engage with factories in a ‘co-operative and friendly spirit’, where it saw its role as being more ‘to assist the management in overcoming the difficulties’ that frequently arose with new processes, and ‘securing the best possible conditions from the points of view both of the public and of the industry itself ’.25 The chief attraction of technocracy, therefore, lies in its ability to claim objective legitimacy for the evaluative positions it adopts, to justify those positions with respect to the expertise of its members and the suitability of the technical criteria on which the positions in question are based, and to draw on that combination of legitimacy and expertise to induce a culture of compliance in the persons subject to regulation through persuasion as much as through coercive enforcement.26 The existence of these advantages does not, however, necessarily mean that regulation should, or must, displace private law. From the perspective of regulatory theory, private law, too, enjoys a distinctiveness that gives it an important role to play within the institutions of governance in any given jurisdiction. This distinctiveness lies not in the doctrines and remedies that are characteristic of private law, nor does it lie in the goals which the rules and structures of private law are said to pursue. It lies, rather, in the structure of its institutions and process—specifically, the role of adjudication and of the individual case in the process not only by which particular disputes are resolved, but also in the process by which private law evolves and its rules are made. Two features of private law, in particular, acquire importance when we look at it through the lens of regulatory theory. The first is its ‘embedded autonomy’, a notion devised by Peter Evans, a scholar of public administration.27 Embedded autonomy refers to the fact that the institution is embedded in society, and thus open to receiving and perceiving changing social expectations and legal needs, whilst at the same time also being sufficiently autonomous or independent from society to ensure that in the process of adapting to changing expectations and needs, it is not simply buffeted this way or that by the prevailing winds in society. The second feature is what has been called its inner normativity, which offers a classic example of what John Braithwaite, a regulatory theorist, has termed the ability of regulatory institutions to change cultures of vice to cultures of virtue by confronting sector participants with their ethical side.28 Taken together, these lead to an approach to determining the boundaries of conduct which is rooted in socially embedded understandings of responsible conduct, and which serves as an important complement to the risk-based approaches of regulators.

24 See generally R MacLeod, ‘The Alkali Acts Administration, 1863–84: The Emergence of the Civil Scientist’ (1965) 9 Victorian Studies 85. 25 WA Damon, ‘The Alkali Act: Its Administration and Relation to Chemical Industry’ (1935) 54 Journal of the Society of Chemical Industry 1070, 1071. 26 See, eg, J Braithwaite, To Punish or Persuade: Enforcement of Coal Mine Safety (Albany NY, SUNY Press, 1985). 27 P Evans, Embedded Autonomy: States and Industrial Transformation (Princeton NJ, Princeton University Press, 1995). 28 V Braithwaite and J Braithwaite, ‘Democratic Sentiment and Cyclical Markets in Vice’ (2006) 46 British Journal of Criminology 1110.

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While the notion of inner normativity is familiar to theorists of private law, the idea of embedded autonomy is likely to be less so, and requires further elaboration. The importance of the notion of embeddedness to the common law can be seen if we begin with the classic work of Nonet and Selznick on the transformation of the common law in the course of the twentieth century. Nonet and Selznick describe the direction of legal development over this time as entailing a move from ‘autonomous law’ to ‘responsive law’29—or, to put it differently, from a law grounded in a model of rules applied and extended through artificial reason30 to one more overtly concerned with and aware of its role as a ‘facilitator of response to social needs and aspirations.’31 The move, as they describe it, arises as a consequence of the limitations of autonomous law, for whilst autonomous law carries a powerful claim to legitimacy, it suffers from a serious drawback: A focus on rules helps enforce a measure of official accountability; at the same time, it limits both the creativity of legal institutions and the risk of their intrusion into the political domain … Regularity and fairness, not substantive justice, are the first ends and the main competence of the legal order.32

This leads to the displacement of autonomous law by newer systems of responsive law, grounded in a more instrumentalist jurisprudence, which favours openness to a wider range of factors over the preference for integrity that was immanent in autonomous law: good law should offer more than procedural justice. It should be competent as well as fair; it should help define the public interest and be committed to the achievement of substantive justice … Legal institutions were to … become more dynamic instruments of social ordering and social change.33

At one level, this account appears to offer an accurate diagnosis of the factors underlying the growing shift from private law, characterised by an epistemically closed autonomy, to a more open and responsive system of regulation. Yet private law does not have to be, and is not in fact, so rigidly autonomous. The common law displays what is arguably the strongest embedded autonomy of any governing institution, through its ability to draw on a wide range of socially informed experiential perspectives through its constant engagement with litigants, whilst at the same time retaining a degree of insulation from these perspectives through the necessity of filtering them through a layer of doctrine. Concepts in private law are not only expressed in a terminology that is socially embedded, using phrases such as ‘cause’ and ‘reasonableness’, but also derive their content from a broad range of cases involving a broad range of everyday situations. Private law doctrine is, in consequence, articulated in terms of concepts drawn from everyday experience, and developed through cases reflecting everyday situations.34 This distinguishes it sharply from the structure and

29 P Nonet and P Selznick, Law and Society in Transition: Towards Responsive Law (New York, Harper & Row, 1978). 30 ibid 62. 31 ibid 14–15. 32 ibid 54. 33 ibid 73–74. 34 This, arguably, is true of the common law generally and not just of private law. For a similar argument in relation to public law, see TT Arvind and L Stirton, ‘Legal Ideology, Legal Doctrine and the UK’s Top Judges’ (2016) Public Law 418.

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operation of the more technocratic institutions that are typical of the regulatory state which, as discussed above, are developed on the basis of engagement with technical models, rather than everyday situations, and are grounded in a conceptualism that reflects technical criteria, rather than experiential perspectives. Taken together, the twin characteristics of inner normativity and embedded autonomy point to a significant strength of private law which set it apart from regulation and argue for giving it a continuing and prominent role even within the regulatory state—specifically, its potential to offer a way between the world of rigid determination according to clear rules (as is typical of purely administrative bodies), and of purely outcome-based determinations (as is typical of purely regulatory bodies), and in so doing to build on a far broader range of experiential perspectives, expectations, and socially embedded norms than one would expect to achieve through a more technocratically oriented regulatory process. As we will see in the next section, it is this strength, and the potential consequences of its marginalisation, that makes the future of private law a matter of profound importance.

III. The Limits of the Regulatory State: The Case of Financial Markets Let us, then, return to the question with which this essay started. Given the relative strengths of private law and regulation, what role can or should private law play in the regulatory state? Do the strengths discussed in the previous section argue in favour of a broader role for private law than it currently plays? As this section will argue through an extended discussion of financial regulation, private law does have such a role, because the ability of financial regulation to deal technocratically with the problem of financial instability is inherently limited. In the modern context, technocracy is frequently used as a term of opprobrium.35 As the discussion in the previous section should have indicated, we do not use it in that sense in this chapter. Technocratic regulation has made important contributions to modern governance which a system grounded in private law could not have made, in areas ranging from food safety to industrial pollution. Nevertheless, technocratic regulation has its limits. There is, in particular, a very significant difference between the technocratic regulation of scientific phenomena, that is to say phenomena such as the industrial pollution that was the subject of the Alkali Acts Administration, which are capable of being studied and evaluated through the natural sciences, and the technocratic regulation of social phenomena, which are not capable of being studied or evaluated through the natural sciences. An important difference between the two is that the concepts and ideas implicated in the regulation of natural phenomena are criterial, and capable of objective determination. There is an objectively correct answer to the question ‘how much sulphur does the vapour emitted by this plant contain per cubic foot?’, because there is an objective definition of ‘sulphur’ and of ‘cubic foot’. This makes such phenomena particularly suited to 35 See, eg, J Habermas, ‘Technology and Science as “Ideology”’ in Toward a Rational Society: Student Protest, Science and Politics (JJ Shapiro tr, London, Heinemann, 1971).

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being governed by regulatory systems which operate on the basis of technical criteria. The concepts implicated in social phenomena, in contrast, are typically interpretive and incapable of objective determination. There is no objective answer to the question ‘What is the net value of the financial assets held by a particular company’, because both ‘financial assets’ and ‘held by’ are capable of varying interpretations, none of which can be said to be the objectively correct one, as evidenced not least by the significant differences one sees in the Generally Accepted Accounting Practices of different jurisdictions on this very point.36 This subjectivity means that governance by technical criteria has limits in relation to social phenomena, including those that are the subject of financial regulation, which it does not have in relation to scientific phenomena.37 This subjectivity was at the heart of the failure of regulation in the 2008 financial crisis and, as we will see in the remainder of this section, it is this subjectivity that makes private law’s displacement by regulation a matter of particular concern. Financial regulation is purely regulatory in its structure, functioning and in its conceptual framework. There is no common law substrate to any of its components, unlike in many other forms of regulation, and it is becoming ever more so as its formulation is driven more and more by international and supranational standard-setting agendas. An important focus of the regulatory response to the post-2008 crisis, and more generally of regulatory policy direction in relation to finance, has been around the notion of ‘resilience’ and, in particular, the resilience of markets and institutions. Thus the Basel III Rules invoked the idea in their title: ‘A Global Regulatory Framework for More Resilient Banks and Banking Systems’.38 The work of other regulatory actors is similarly organised, with the Financial Stability Board speaking of its mission in terms of ‘enhancing market and institutional resilience’.39 Such a focus on resilience is not peculiar to the world of finance, but is typical of technocratic regulation. Resilience, as conceived in such models, has two facets. The first is the ability of a system to respond to disturbance or disruption by reorganising, adapting and changing to cope with the effects of that disturbance, while retaining its identity, structure and function.40 The second is its ability to return to a state close to a previous equilibrium after this disturbance or disruption—an inherent robustness when faced with unforeseen challenges.41 This idea is primarily economic and systemic: the focus is on the resilience of the system as a whole, and of systemically important actors, whose resilience is important to the continued vitality of that system. Thus the Basel rules, for example, focus on the

36 D Bholat et al, ‘Non-performing loans: regulatory and accounting treatments of assets’ (Bank of England Staff Working Paper No 594, 2016). 37 Compare the point made by Ian Varcoe in relation to the growing gap in modern technocratic systems between ‘technical and social sophistication; between the level of technical control and that of understanding of, and ability to manipulate, the socio-technical environment.’ I Varcoe, ‘Technocracy and Democratic Politics’ in R Kilminster and I Varcoe (eds), Culture, Modernity and Revolution: Essays in Honour of Zygmunt Bauman (London, Routledge, 1996) 67. 38 Basel Committee on Banking Supervision, Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (2011) www.bis.org/publ/bcbs189.htm. 39 Financial Stability Forum, Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience (2008) www.financialstabilityboard.org/publications/r_0804.pdf. 40 BH Walker et al, ‘Resilience, adaptability and transformability in social-ecological systems’ (2004) 9 Ecology and Society art 5. 41 I Gunderson, ‘Ecological resilience—in theory and application’ (2000) 31 Annual Review of Ecology and Systematics 425.

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r esilience of individual banks and the banking system, treating these as interwoven, with more resilient banks contributing to a system that is, overall, more resilient.42 The result is that the disruption as well as the restored equilibrium are understood in economic terms, typically with reference to aggregated indicators, traditionally macroeconomic but increasingly also incorporating elements of microeconomics.43 So, too, are the aetiology of crises, and the broad shape of the prophylactic regulatory measures needed to deal with them which are directed towards strengthening the ability of the system to adapt to unforeseen and unforeseeable risks.44 The quantification of risk, and the use of technical criteria to manage its impact on the system, are accordingly fundamental to the regulatory management of the financial system. Prior to the crisis, the authorities in the UK used what was termed the ‘Advanced, Risk-Responsive Operating Framework’ (ARROW), a cutting-edge form of supervision based on a calculation of the overall risk posed by an individual institution, using an estimate of the probability and likely impact of its default. ARROW represented, in many ways, the pinnacle of the idea of technocratic regulation of risk. Its aim was to ensure that supervisory time was used most efficiently, by focusing it on individual institutions in proportion to the risk they posed. The FSA created a complex matrix of risk elements, which it used to generate probability assessments of market actors on a firm-by-firm basis.45 This was accompanied by a system of ‘principles-based regulation’,46 which sought to ensure that the regulatory system did not get fixated on rules, but instead focused on the outcomes that regulation was intended to achieve.47 ARROW and principles-based regulation were embedded within a system of governance of the financial system shared between three bodies: the Financial Services Authority, the Bank of England and the Treasury, whose joint responsibility were, in a manner typical of technocracy, set out not in law but in a Memorandum of Understanding entered into in 1997 when the system was created.48 When this entire system spectacularly failed in the 2008 crisis, officials pinned a large part of the blame on the processes through which these estimates were made, where they said more extreme stress-testing should have been used. For all the recent, frantic institutional reform after the crisis, however, the basic approach has not been fundamentally changed.49 A more strongly precautionary element has been introduced into the system, and stress

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Basel Committee (n 38) 2. J Gray, ‘Towards a More Resilient Financial System’ (2013) 36 Seattle University Law Review 799. 44 J Walker and M Cooper, ‘Genealogies of resilience: From systems ecology to the political economy of crisis adaptation’ (2011) 42 Security Dialogue 143; P O’Malley, ‘Resilient Subjects: Uncertainty, Warfare and Liberalism’ (2010) 39 Economy and Society 488. 45 See generally J Gray and J Hamilton, Implementing Financial Regulation: Theory and Practice (Chichester, Wiley Finance, 2006) ch 2. 46 J Black, M Hopper and C Band, ‘Making a Success of Principles Based Regulation’ (2007) 1 Law and Financial Markets Review 191. 47 As with other characteristics of financial regulation discussed in this chapter, this, too, is not peculiar to financial regulation, but characterises technocratic regulatory systems in other areas, including environmental regulation and product design. See A Ogus, Regulation: Legal Form and Economic Theory (Oxford, Clarendon, 1994) ch 8. 48 On the system generally, see R Lastra, Legal Foundations of International Monetary Stability (Oxford, Oxford University Press, 2006). 49 See J Gray, ‘Financial Regulation Before and After Northern Rock’ in J Gray and O Akseli (eds), Financial Regulation in Crisis: The Role of Law and the Failure of Northern Rock (Cheltenham, Edward Elgar, 2011). 43

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tests of key financial actors have been made more extreme.50 There is greater focus on risks endogenous to the game, on ‘aggregate risks and vulnerabilities across the system’ and on ‘imbalances through the financial system’ that must be identified and addressed to ‘improve the resilience of the financial system.’51 A ‘judgement-based’ element has also been introduced, which requires the Prudential Regulatory Authority to judge whether financial firms are safe and sound.52 And the PRA has developed ‘Fundamental Rules’, which seek to set out broad standards of conduct for firms, requiring for example that a firm must conduct its business with integrity53 and with due skill, care and diligence,54 act in a prudent manner,55 control its affairs responsibly and effectively,56 and so on. But the approach to resilience remains grounded in managing risks by assessing them, assessing the banks’ systems for dealing with them, and, if need be, requiring banks to take further steps necessary to secure market integrity and efficiency. And when it comes to the underlying criteria and touchstones that are the operational heart of the PRA’s supervision, such as capital buffers57 and credit risk,58 they continue to be defined in terms that overwhelmingly reflect technical criteria. What, then, is missing in this system, and what can private law add to this mix? The combination of embedded autonomy and a conduct-based approach mean that private law is capable of doing three things that regulation is not. The first goes to the idea of regulatory failure and, in particular, regulatory failure that is the result of the limitations of risk as an idea. Technocratic regulation is based on the use of expertise to manage risks that threaten goals. Yet such an approach is inherently limited, because the actuarial accounts of risks and resilience that are the mainstay of financial regulation represent, in Herbert Simon’s terminology, simplified models of reality created by ‘administrative man’, from which all aspects of the factual context deemed less relevant have been eliminated.59 The distinction is sometimes described as being between actuarially manageable risk and unpredictable, ungovernable uncertainty.60 Unlike regulation, the traditional concern of the common law was with uncertainty, dealt with through broad standards of conduct. Private law did not operate on the basis of an assessment of what was necessary to attain systemic stability and resilience. No judge has the power of the governors of the Bank of England or the FCA’s chairman, to remake the rulebook pursuing a better way to achieve certain ends. The common law operates, instead, incrementally, on the basis of context-specific decisions, drawing on

50 Bank of England, Stress Testing the UK Banking System: Key Elements of the 2015 Stress Test (2015) www.bankofengland.co.uk/financialstability/Documents/stresstesting/2015/keyelements.pdf. 51 HM Treasury, A New Approach to Financial Regulation: Judgement, Focus and Stability (Cm 7874, 2010) para 2.24. 52 J Gray and P Metzing, ‘Defining and delivering judgement-based supervision: The interface with the legal System’ (2013) 14 Journal of Banking Regulation 228. 53 PRA Rulebook: Fundamental Rules Instrument 2014, PRA 2014/17, Annex B, r 2.1. 54 ibid r 2.2. 55 ibid r 2.3. 56 ibid rurle 2.6. 57 PRA Rulebook CRR Firms: Capital Buffers Instrument 2014, PRA 2014/9. 58 PRA Rulebook CRR Firms Instrument 2013, PRA 2013/36. 59 HA Simon, Administrative Behavior: A Study of Decision-Making Processes in Administrative Organisations, 3rd edn (London, Collier Macmillan, 1976) ch 5. 60 On the relationship between resilience and the management of uncertainty, see M Welsh, ‘Resilience and responsibility: governing uncertainty in a complex world’ (2014) 180 The Geographical Journal 15.

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socially derived understandings of what must be done to avoid harming another. Such a system is not inherently concerned with the actuarial and managerial considerations that are the base of regulation. Secondly, the regulatory approach to resilience is notable in that it is focused on the needs and perspectives of technocratic experts and institutional market players, and is institutionally insulated from the needs and perspectives of end-users and of the broader polity. As such, it fails to capture important aspects of financial crises and, in particular, the socio-cultural dimensions of resilience. In socio-cultural terms, resilience is understood in a much broader sense as the capacity to preserve well-being in the face of disruptive adversity, with a focus on the ordinary individual actor (rather than the exceptional systemically important actor), and on the manner in which that actor’s plans, actions and perspectives come to be influenced by the crisis.61 This is not captured by credit default spreads, capital adequacy ratios, or bank stress tests. Policies targeted at resilience which do not take these aspects of resilience seriously will leave significant effects unaddressed, as the experience of communities suffering the effects of deindustrialisation has shown.62 It should be obvious that here, again, a more socially embedded approach to determining duties and remedies has a significant role to play. On both these points, the decision of the Federal Court of Australia in the Bathurst litigation,63 discussed in more detail in the next section, stands out as an example of precisely why there is an important role which private law is well-suited to filling. Thirdly, dealing with the systemic issues posed by financial misconduct requires a focus on conduct-based action, and not merely risk-based action, because risk-based regulation is producing outcomes that are near absurd. Take, for example, the requirement of disclosure, whose impact has been the creation of an extraordinary culture of defensive reporting, with reports becoming so complex and so detailed that even experienced professional analysts struggle to make sense of them. Banks are under so much pressure to disclose risk factors that they produce reports in which virtually everything is treated as a risk factor—meaning, in reality, that nothing is treated as a risk factor.64 This points to the limits of managerialism as an ideology of governance, and gives context to the importance of a different approach, of converting cultures of vice into cultures of virtue (as Braithwaite put it).65 As we have argued elsewhere, this was the understanding that was at the heart of responses to the Victorian banking crisis; and it is strikingly absent today.66 The focus of modern regulation is on acting against individuals committing acts of vice, not on changing

61 A Zautra et al, ‘Resilience: A new definition of health for people and communities’ in JW Reich et al (eds), Handbook of Adult Resilience (New York, Guildford Press, 2010). 62 D MacKinnon and KD Derickson, ‘From Resilience to Resourcefulness: A Critique of Resilience Policy and Activism’ (2013) 32 Progress in Human Geography 253. 63 ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65, confirming Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. 64 M Spick, ‘Berichterstattung von Banken—die große Informationsflut’ (2015) 4 Konzept 8, 8–9, www.dbresearch.de/PROD/DBR_INTERNET_DE-PROD/PROD0000000000356070.pdf. 65 Braithwaite and Braithwaite (n 28). 66 TT Arvind, J Gray, and S Wilson, ‘From The Mid-Nineteenth Century Bank Failures In The UK To The 21st Century Financial Policy Committee: Changing Views Of Responsibility For Systemic Stability’ in M Hollow, F Akinbami and R Michie (eds), Complexity And Crisis In The Financial System: Critical Perspectives on American and British Banking (Cheltenham, Edward Elgar, 2016).

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institutional culture. Unlike the tort of negligence, where common law normative standards of conduct operate alongside regulatory action such as suspending licences, in the area of financial regulation we see only the latter. This is a deliberate choice. In a speech at Davos, Mark Carney, the Governor of the Bank of England, emphasised that the task of reforming behaviour and re-establishing the system’s reputation for integrity was not something regulators could do.67 This stands in stark contrast with the response to the banking crises of the mid-nineteenth century, before the birth of financial regulation in the modern sense, where the focus of the legal response was precisely to use legal standards of legitimate behaviour to deal with conduct that posed a systemic threat.

IV. Reshaping Private Law: Towards a Standard of Enlightened Morality? This chapter has argued that the displacement of private law by regulation is fundamentally misplaced. Using the example of financial regulation, we have sought to show that the core institutional characteristics of private law, when seen against the backdrop of the modern financial system, offer an important complement to the regulatory institutions that currently dominate the governance of the financial system. The fact that private law can play this role does not, however, mean that it necessarily does so. As we discuss in this section, the direction in which private law has developed in its recent history has made it far more difficult for it to play this role. One set of hurdles is institutional. Recent changes to the civil justice system have, unfortunately, taken it in the opposite direction from where it will need to go to if it is to play a broader role in relation to finance. The abolition of legal aid for ordinary civil claims in England and Wales, for example, places significant hurdles in the path of ordinary claimants who seek to bring actions against large financial institutions. But so, too, do the case management procedures which were brought in in a bid to streamline the judicial process, but which have had the unfortunate effect of complicating collective proceedings. The experience of the Royal Bank of Scotland rights issue action points to the difficulty the common law litigation process has in dealing with claims involving large numbers of claimants. The action was brought on behalf of various action groups, representing institutional and individual investors, against the RBS alleging breach of section 90 of the Financial Services and Markets Act 2000, on the basis that the prospectus issued in connection with the RBS rights issue in 2008 contained material misleading statements. The investors invested at 200p a share, only for the price to fall to 11p less than nine months later. Over 16,000 individual investors and over a hundred institutional investors are represented in the action. Proceedings were issued in April 2013. Three years later, the case remains in case management, with a tenth case management conference scheduled for June 2016, and the trial unlikely to start

67 Bank of England, ‘Remarks given by Mark Carney, Governor of the Bank of England at the Davos CBI British Business Leaders Lunch, 24 January 2014’, www.bankofengland.co.uk/publications/Documents/speeches/2014/ speech705.pdf.

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before March 2017. Over 25 million documents are involved, and RBS’s defence costs alone are estimated at £90 million.68 This problem is not unique to the common law, as the German experience with the Law on Model Proceedings in Capital Market Disputes (Kapitalanleger-Musterverfahrensgesetz, or ‘KapMuG’) demonstrates. The KapMuG was passed in response to the difficulties created by one specific case, an investor action against Deutsche Telekom. Deutsche Telekom issued an IPO in 1999. In 2001, following a revaluation of its property holdings, it wrote down the value of the land it held by around €2 billion, causing its share value to plummet by 92%.69 This resulted in over 16,000 individual lawsuits being brought against it in the courts at Frankfurt, all of which were, in theory, to be heard by a single judge. This posed significant logistical challenges for the court and, following the intervention of the Constitutional Court in 2004, the KapMuG was enacted in 2005.70 Resolving the case took another seven years and a series of very complicated procedural steps.71 The ultimate result was that the action was dismissed in 2012 on the basis that the prospectus did not contain a misstatement. The case was then appealed on a point of law to the German Supreme Court, which ruled in 2014 that the prospectus did contain a misstatement, although one unconnected to the writedown of the real estate portfolio. The case then returned to the lower court to determine whether investors should be compensated for the fall in the share price. As these examples suggest, both common law and civil law jurisdictions have struggled to provide an effective procedure for actions connected with capital markets. The procedures that do exist make actions time-consuming, protracted, procedurally complex, and extremely expensive. Yet the option of having recourse to private law remains popular: the KapMuG continues to be invoked in Germany, most recently in an action by investors in Volkswagen in connection with its admission that it had engaged in systematic manipulation of the results of emissions tests; and whilst there are few other cases akin to the RBS rights issue action in England, the relevance of private law actions is seen from their use by more sophisticated market transactors in England as well as other common law jurisdictions, most notably in the Bathurst litigation in Australia.72 This suggests that there is a need for private law to fill the gap left by the limitations of regulation, and that to the extent that its procedural limitations restrict its utility for retail investors, there is an urgent need to consider the question of how best to deal with these limitations. By far a greater hurdle than the procedural one, however, arises from the current state of private law doctrine. As one of us has discussed in greater detail elsewhere, the withdrawal of private law from the task of setting standards has left it doctrinally crippled when

68 A brief history of the proceedings to date is available on the website of Leon Kaye, the solicitors for one of the groups of claimants: www.leonkaye.co.uk/class-actions/royal-bank-of-scotland-rights-issue-action-group/new/. 69 H Merkt, ‘Managing Investor Mass Claims in Germany: Group Litigation under the new Investor-SampleProceeding-Law (KapMuG)’ (2006) 17 Journal of Interdisciplinary Economics 117. 70 Moritz Bälz and Felix Blobel, ‘Collective Litigation German Style: The Act on Model Proceedings in Capital Market Disputes’ in E Gottschalk, R Michaels, G Ruhl and J von Hein (eds), Conflict of Law in a Globalized World (Cambridge, Cambridge University Press, 2007). 71 For an overview, see AW Tilp and TA Roth, ‘The German Capital Market Model Proceedings Act as I llustrated by the Example of the Frankfurt Deutsche Telekom Claims’ in W van Boom and G Wagner (eds), Mass Torts in Europe: Cases and Reflections (Berlin, De Gruyter, 2014) 136–38. 72 ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65.

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it comes to coping with several features of modern transactions that are the mainstay of regulation: in particular, dealing with interaction involving Hohfeldian powers (rather than privileges), ruthlessly self-seeking action, and networks of connected transactions, all of which are typical of financial transactions (and, indeed, characterised the conduct of the defendants in Bathurst).73 Section I of this chapter levelled an implicit criticism of Derry v Peek,74 as typifying the courts’ refusal to involve themselves in setting standards fundamental to financial markets. From this point of view, it is useful to contrast the law as it stands today with the law as it stood prior to the decision of the House of Lords in that case, not just with reference to the doctrinal position in the strict sense, but also with reference to the evaluative basis underpinning those positions. From this perspective, two points in particular stand out about the decision of the Court of Appeal in Peek v Derry75 and the authorities on which it built. In doctrinal terms, of course, the clearest point of separation lies in the fourth limb of liability of fraud which the Court of Appeal articulated, namely, that a person would be liable in fraud if he made a statement which ‘is untrue in fact but believed to be true, but without any reasonable grounds for such belief.’76 The House of Lords, as is well known, rejected this in favour of the stricter test that continues to form the basis of the tort of deceit. Yet what is even more striking is the basis on which the judges of the Court of Appeal sought to justify the manner in which they applied this test. The defendants in Derry v Peek had argued that they had acted honestly and reasonably, because they had sincerely believed that the Board of Trade would consent to the use of steam power in running the line, and had done no more than act on that belief. Stirling J in the High Court agreed: Mercantile men dealing with matters of business would be the first to cry out if I extended the notion of deceit into what is honestly done in the belief that these things would come about, and when they did not come about make them liable in an action of fraud.77

The Court of Appeal did not agree. In his judgment, Sir James Hannen dealt directly with Stirling J’s point: It appears to me that nothing can morally justify a man in stating a thing as a fact, as existing at present, because he expects that it will exist in the future … I can only say that there are two classes of mercantile men. There are those who have lax notions of the duty of taking care to be accurate, and those who are scrupulously careful to observe this duty; and it is the opinion of the latter class to which I attach most importance.78

It is striking that Sir James Hannen sought to ground his decision in commercial morality, and that he did so by invoking a certain understanding of morality that he located in the more ‘scrupulously careful’ class of transactors. Given the discussion in section II, this has obvious significance. More importantly, though, it is difficult to imagine a modern court being willing to base its decision on a similar ground. In modern private law adjudication, it

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Arvind (n 2). Derry v Peek (1888) LR 14 App Cas 337 (HL). 75 Peek v Derry (1887) LR 37 Ch D 541. 76 ibid 585 (Lopes LJ). 77 ibid 558 (Stirling J). 78 ibid 584 (Sir J Hannen). 74

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is common to read of the importance of commercial context,79 or of market expectations,80 but one seldom sees the upper judiciary invoking normative standards of commercial conduct based on the conduct of the more ‘scrupulous’ transactors in aid of a decision. To the contrary, to the extent there is a trend, it has tended in the opposite direction for, even when dealing with standards that on their face might appear to impute a socially embedded approach, such as ‘the man on the Clapham omnibus’, the tendency has been to emphasise the fact that these standards are legal standards, to be applied by the court on the basis of legal criteria rather than with reference to socially embedded norms.81 The decision of the Court of Appeal in Peek v Derry, however, was not exceptional in its day in its use of the idea of commercial morality (or ‘enlightened morality’, as Frederick Pollock termed it in his deeply critical comment on the decision of the House of Lords).82 As Pollock discussed, it was merely the latest in a long line of cases to base itself on the ‘judgment of enlightened morality.’ In Adamson v Jarvis,83 Best CJ had put the principle even more broadly: He who affirms either what he does not know to be true, or knows to be false, to another’s prejudice and his own gain, is both in morality and law guilty of falsehood and must answer in damages.84

Best CJ went on to draw a distinction between a case where a party gave his opinion because he was asked, despite having no interest in the matter. Here, an honest but mistaken answer would be acceptable. But where there was an interest involved, the higher standard must apply. Pollock endorsed this view, and thought that the decision of the Court of Appeal in Peek v Derry, had it stood, would have been a step in extending the law in this direction, an extension he regarded as ‘legitimate and desirable’ and ‘quite in accordance with the lines of development which the common law has followed in regard to actions and undertakings affecting the safety of others in person or property.’85 Pollock was convinced that the common law would eventually take this path, even if the decision in Derry v Peek proved to be a complicating factor in the process. With the benefit of hindsight, it is of course evident that the common law has not taken that path. Yet it is at least arguable that it ought to have. Commentators from outside the law, writing in the aftermath of the 2008 financial crisis, have lamented both the ‘systematic chain of misrepresentation’ that characterises complex financial transactions, as well as the growing lack of the sense of responsibility that ought to be implicit in the fact that those working in the financial system are, fundamentally, dealing with the money of another.86 Against this background, they have stressed the need for an internalisation of the principles of ethical financial conduct, akin to the manner in which most people avoid stealing or murdering.87

79 The interpretation of contracts being a particularly clear case in point: Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 (HL). 80 See, eg, Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 (HL) [23] (Lord Hoffmann). 81 Healthcare at Home Ltd v The Common Services Agency [2014] UKSC 49 [3] (Lord Reed). 82 F Pollock, ‘Derry v Peek in the House of Lords’ (1889) 5 LQR 410, 412. 83 Adamson v Jarvis (1827) 4 Bing 66. 84 ibid 73. 85 Pollock (n 82) 422–23. 86 J Kay, Other People’s Money: Masters of the Universe or Servants of the People? (London, Profile Books, 2015) 83–85, 282–84. 87 ibid 272–73.

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This, arguably, was precisely the attitude that underlay the approach taken by the Court of Appeal in Peek v Derry, and by Best CJ in Adamson v Jarvis.88 From a legal point of view, the desocialisation implicit in the shift away from this attitude has been exacerbated by other trends that have characterised the recent evolution of private law, and which arguably represent the legal acceptance of aspects of commercial practice even though, in the language of Pollock, they run counter to ‘enlightened morality’. Modern private law displays a strong trend towards what we might term bilateralisation and individuation, leading it to disaggregate individual transactions from the networks of which they naturally form part, viewing the rights and obligations of each party towards each other party as if they constituted an isolated relationship raising issues distinct from those raised by the other relationships within the network. It also displays a strong tendency towards contractualisation, seen not least in the reluctance to award compensation for pure economic loss in non-contractual contexts, and the surprising, and ongoing, expansion of assumption of responsibility beyond negligent misstatement into areas such as physical injury.89 The impact of these trends has been particularly strong in relation to equity, reflecting a broader failure to recognise that equity is based on a more relational and social understanding of transactional relationships: one that recognises the embeddedness of market transactions in a social context, and one that therefore has the necessary conceptual framework that will be needed to deal with the issues and expectations raised by that social context.90 In particular, equity has historically been particularly closely associated with situations where the questions concern the opportunistic exercise of powers, and thus import an element of dependence, and where these powers and dependence relate to control of assets and resources,91 precisely the sort of issues where most ground has been ceded to regulation in recent years. But it has equally influenced the operation of all private law duties that touch upon the financial system. Consider, by way of example, the decision of Lord Hoffmann in Customs and Excise Commissioners v Barclays Bank plc.92 Speaking of the basis on which the courts infer a duty of care in cases of pure economic loss, he discussed how duties might differ in different aspects of the same situation: [I]n a case in which A provides information on behalf of B to C for the purpose of being relied upon by C, it is useful to ask whether A assumed responsibility to C for the information or was only discharging his duty to B… Or in a case in which A provided information to B for the purpose of enabling him to make one kind of decision, it may be useful to ask whether he assumed responsibility for its use for a different kind of decision … In these cases in which the loss has been caused by the claimant’s reliance on information provided by the defendant, it is critical to decide whether the defendant (rather than someone else) assumed responsibility for the accuracy of the information to the claimant (rather than to someone else) or for its use by the claimant for one purpose (rather than another). The answer does not depend upon what the defendant intended but, as in

88

Adamson v Jarvis (1827) 4 Bing 66. eg, Ministry of Defence v Radclyffe [2009] EWCA Civ 635; Andrew Risk v Rose Bruford College [2013] EWHC 3869 (QB). 90 TT Arvind, ‘Contracts, Transactions, and Equity’ in LA DiMatteo, Q Zhou, S Saintier, and K Rowley (eds), Commercial Contract Law: Transatlantic Perspectives (Cambridge, Cambridge University Press, 2013). 91 ibid 173–75. 92 Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181. 89 See,

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the case of contractual liability, upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case.93

This is a long way removed from the approach taken by Frederick Pollock, Sir James Hannen, and Best CJ, which focused on the far simpler question of whether the person making the statement was acting for his own gain. The facts of the Bathurst litigation will help put these points in context. The case arose out of the creation of a complex, structured financial product by ABN AMRO which was, from the outset, intended to be specifically targeted at local councils in Australia. The product was known as a Constant Proportion Debt Obligation (CPDO) and was, in essence, a synthetic credit default swap (that is to say, a credit default swap which did not actually involve protecting against the risk of a credit default) linked to global indices which tracked pools of entities which in turn tracked a range of financial criteria.94 Had this been a real CDS, the investors would have sold protection against default by the tracked entities to their counterparties. Because it was synthetic, the investors in effect entered into contracts with the counterparties which created obligations that mimicked the cash flows that would have taken place had the contracts been real CDSs. Although synthetic CDSs are common, and products similar to the CPDOs were not unknown, this precise product had never been seen before, and there were no precedents in relation to rating it.95 ABN AMRO approached Standard and Poor’s, a leading credit rating agency, to give it a rating. A rating of AAA was required if the CPDO was to be marketable to local authorities. Evidence adduced during the trial demonstrated how Standard and Poor’s (S&P) and ABN AMRO had adjusted the assumptions on which their models were based, including by adopting a volatility parameter they knew to be flawed, and by adopting other overly favourable assumptions, until they came up with an analysis that justified this rating. Several of S&P’s analysts were dissatisfied with this process, and it was internally agreed that future instruments would be approached differently, but the formal letter with the AAA rating was issued, notwithstanding these concerns.96 This AAA rating was ‘unreasonable, unjustified and misleading’, as both ABN AMRO and S&P knew.97 Both also knew that the primary purpose of securing an AAA rating was to induce investors to believe that the CPDO was a secure investment when, in fact, their own models did not justify asserting that it was that secure. The notes were sold by ABN AMRO to an entity called Local Government Financial Services Pty Ltd (LGFS), which in turn sold it on to the councils. LGFS had little experience with structured financial products, and was unable to verify the rating.98 Nevertheless, in its communications with the councils it made a decision ‘only to show the key features which were positive, not those that presented risks’,99 so as to avoid hindering its ability to sell the notes on.100 As it transpired, once the 2008 financial crisis hit, the councils suffered

93

ibid [35]. ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 [32]–[36]. 95 ibid [38]. 96 ibid [145]–[373]. 97 ibid [563]. 98 ibid [75]. 99 ibid [128]. 100 ibid [130]. 94

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very significant losses on their investment. The notes were redeemed at around 35 per cent of their face value. S&P itself had by this time downgraded its rating to BBB+. The councils sued S&P, ABN AMRO, and LGFS. The claim was allowed at first instance and upheld on appeal. All three defendants were held jointly and severally liable to the councils in negligence for negligent misstatement, in the statutory tort of misleading or deceptive conduct,101 as well as certain other causes of action. Three points about the court’s finding on the negligence claim, in particular, stand out. First, the court rejected the idea that the case involved novel circumstances. Because ‘Expert information and advice is part and parcel of modern commercial life’,102 the case was a straightforward one of applying the relevant test for the supply of negligent information and advice. On the facts, these were made out, because S&P as well as ABN AMRO must have realised that the councils and others receiving the information intended to act on it in connection with a serious matter, and because reliance was under the circumstances reasonable. Secondly, the court also rejected the idea that imposing a duty would on the facts lead to indeterminate liability, because on the facts the class of potential investors was both limited and ascertainable. S&P knew the size of the issue, and would therefore have been able to estimate a maximum number of investors with a relatively high degree of certainty. Thirdly, and relatedly, given that the class of investors was ascertainable, liability could arise even without the presence of a contract. Yet, whilst this decision certainly reflects a welcome step forward, it remains inadequate at many levels. Because the decision is heavily fact-dependent, it leaves open questions about how wide its effect truly is. Would it apply if the ratings had been issued in circumstances that suggested an offer that was much wider—for example an offer to the general public? Would it apply had the products that were the subject matter of the rating been less complex—if, for example, the court did not have before it evidence comparable to that before the Federal Court, clearly demonstrating both the novelty of the CPDOs and the complete inability of the investors to ‘second guess’ the rating awarded by S&P? And, more fundamentally, does a case which leaves so much uncertain truly meet the objectives which private law is capable of meeting, and which underlie the case for its wider involvement in the legal system alongside regulation? These questions acquire particular importance in the light of the points discussed in sections III and IV of this chapter, and in the light of the enduring relevance of the approach that underlay the nineteenth-century jurisprudence discussed above. The disappearance of this broader understanding of the role of private law is then yet another symptom of the shrinking role that private law plays in the modern context, and part of the issues with which judges and jurists working in private law must deal, if private law, and the common law tradition it embodies, is to play anything more than a marginal role in the twenty-first century.

101 Under ss 1041E and 1041H, Corporations Act 2001, and s 12DA of the Australian Securities and Investments Commission Act 2001. 102 ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 [590].

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13 Common Law and the Constraint of Financial Markets: Credit Rating Agencies as a Test Case JOSHUA GETZLER AND ALEXANDRA WHELAN*

Can the law develop workable, litigable rules to measure the duty and standard of care owed by financial intermediaries to clients? In this chapter we examine the legal control of credit rating agencies, using this as a test case to demonstrate how financial intermediation poses a set of difficult problems for the common law tradition to solve. We discuss the origins and functions of rating agencies as information intermediaries, and show how the rating industry slid into pathology in the mid-2000s. We then outline recent developments in case law and statute grappling with rating agency liability, and show that it remains unclear whether increased or perhaps decreased liability would best serve the interests of a healthy financial sector.

I. Credit Rating Agencies: From Expertise to Monopoly Power A. Origins The rating agencies began in the United States from 1860 as publishers of financial j ournals or manuals conveying information about stocks and shares and factor prices for the public, especially regarding the railway industry.1 The rating agencies’ publications of this era may

* Thanks are due to John Armour, Dan Awrey, Kit Barker, Simone Degeling, Luca Enriques, Jessica Hudson, Jenny Payne, Robert Stevens, John Vickers, Peter Watts, and Kristin van Zwieten. The authors are responsible for all deficiencies. 1 On the evolution and function of the credit rating agencies: R Cantor and F Packer, ‘The Credit Rating Industry’ (1994) 19 Federal Reserve Bank of New York Quarterly Review 1; F Partnoy, ‘The Siskel and Ebert of Financial Markets?: Two Thumbs Down for the Credit Rating Agencies’ (1999) 77 Washington University Law Quarterly 619; R Sylla, A Historical Primer on the Business of Credit Ratings (Washington DC, World Bank, 2001); F Partnoy, ‘Historical Perspectives on the Financial Crisis: Ivar Kreuger, the Credit Rating Agencies, and Two Theories about the Function, and Dysfunction, of Markets’ (2009) 26 Yale Journal on Regulation 431; R Levich, G Majnoni and C Reinhart (eds), Ratings, Rating Agencies and the Global Financial System (Boston, Kluwer Academic, 2002); T Sinclair, The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness (Ithaca

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be compared to today’s public financial reporting, especially in the statistical back pages of the Wall Street Journal, the Financial Times, The Economist, or the various Bloomberg services. A more contemporaneous analogy would be the nineteenth-century almanacs published for a sectoral audience, be they farmers, sports fans or nature lovers. The ratings came to be used in court to verify static and dynamic stock prices in litigations ranging from tax cases to insolvencies to actions for corporate control. But the most common cases in the early twentieth century involved trials of trustees, agents, and fund managers for incompetence in acquitting their investment functions and for fraud in siphoning off corporate capital. The rating agencies’ publications of the prospective ratings of stocks and bonds or other financial data were taken by courts to represent a kind of expert witness in written form. Attempts to throw out such evidence as mere opinion or hearsay were rebutted. The judicial notice accorded to the rating agencies solidified their market reputation and gave both the data and the ratings an authoritative legal status, much as the Farmer’s Almanac weather reports could be cited in court to prove what the weather had been doing on any given day. The rating scale for default risk as a measure of value varied between firms but basically fell into four ranges: high class, prime or excellent (from AAA to AA- on Standard and Poor’s scale), medium or good (A to BBB-), non-investment grade or speculative (BB+ to B-), and, at the bottom, risky, speculative or heading into default (CCC+ to D).2

B. The Regulatory Licence A buyer-oriented business model of the rating agencies was well established prior to the Wall Street Crash of 1929. The agencies aggregated and published verifiable financial data, such as capital/earnings ratios, for consultation by investors who could purchase ready access to these information services, with the data summarised and encoded in the convenient letter ratings. The agencies could also construct bespoke ratings and reports for syndicates of investors, thus serving as hired buy-side analysts. The whole system was transformed by the Great Depression. In the bank crisis of September 1931, two years after the Wall Street Crash, there was a slump in the value of bank assets that threatened the entire financial order. The Federal Comptroller of the Currency, William Pole, who had oversight of the national banking sector, announced on 11 September that he would no longer value bank assets by ‘mark to market’ measures, since markets were so deeply depressed. Rather he would take at face value assets, including US government, state and municipal bonds, and all bonds enjoying any of the ‘first four ratings’, that is prime or its equivalent, as issued ‘by statistical corporations’, as Moody’s, Poor’s, Standard Statistics, Fitch, and the like were then described. All other securities fetching lower grades from the rating agencies were marked to market. This was the origin of the so-called ‘regulatory licence’, by which the

NY, Cornell University Press, 2005); L White, ‘Markets: The Credit Rating Agencies’ (2010) 24 Journal of Economic Perspectives 211; Financial Crisis Inquiry Commission, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (Washington DC, US Government Printer, 2011); M Flandreau and J Sławatyniec, ‘Understanding Rating Addiction: US Courts and the Origins of Rating Agencies’ Regulatory License (1900–1940)’ (2013) 20 Financial History Review 237; R Rhee, ‘Why Credit Rating Agencies Exist’ (2015) 44 Economic Notes 161. 2

Cantor and Packer (n 1).

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government delegated to the rating agencies the task of giving authoritative assessments of the value and risk especially of debt instruments. And it was on debt instruments and their default risk that the agencies now concentrated their attention. Stocks, which represented a much smaller portion of the capital markets, had their value measured and graded by a combination of price history as established by public trading and fundamental analysis, and it was found that analysts directly employed or hired by investors could produce superior proprietary information on stock prices for sale to the buy-side.

C. Monopoly Power and the Move to Issuer Pays In the period after the Great Crash three shifts deepened the market power of the rating agencies.3 First, from 1936 US regulators set a public requirement that certain key financial institutions—such as municipalities and government organs, and also private institutions with systemic importance, such as the larger banks, insurers, and pension funds—could only buy secure financial assets with a suitable risk certification from a publicly recognised rating agency. The second shift was the steep rise, especially from the mid-1970s and again in the early 2000s, in the complexity and variance of debt instruments in an era of financialisation, and the need for complex and dispersed information to be aggregated and packaged into a form that was useful for market actors. The third shift was the propensity of issuers to pay the rating agencies directly to certify their issues, as a key element in the successful formulation and marketing of financial products. Thus the agencies, as delegated regulators of capital, came to be paid by the issuers to make the capital they were supposedly regulating marketable. The new issuer-pays basis of credit rating was intimately linked to an economic logic that helped suppress competition by new entrants. The production of bespoke information about comparative debt risk for buyer syndicates, which had existed for many decades of the mid-twentieth century, could not be made to pay. This was partly because credit ratings had evolved to become ordinal predictions of default risk, necessarily comparing instruments across the whole bond market, so that only entrenched players with huge resources and established reputations could do the work convincingly. The three largest providers, being Standard and Poor’s (itself an amalgamation), Moody’s, and Fitch, enjoyed unrivalled economies of scale and scope, rating up to a million credit instruments per firm on a dynamic basis at any one time, with teams of thousands of specialist analysts employed to capture and process the necessary data. Some niche players (e.g. in insurance markets) remained, but the Big Three controlled over 95% of the US market for credit ratings by the early 2000s, worth some $3 billion per annum in fees, and maybe 50 per cent of foreign rating work, another $3 billion per annum. Standard and Poor’s and Moody’s each controlled some 40 per cent of the US market, with issuers often hiring both, and using Fitch as a tiebreaker when the Big Two could not agree.4

3 These developments are charted in Sylla (n 1); Partnoy ‘Historical Perspectives’ (n 1); Rhee ‘Why Credit Rating Agencies Exist’ (n 1). 4 G Shorter and M Seitzinger, ‘Credit Rating Agencies and Their Regulation’ (Washington DC, Congressional Research Service, 2009); European Securities and Markets Authority, Credit Rating Agencies’ 2014 market share calculations for the purposes of Article 8d of the CRA Regulation (December 2014) and Competition and choice in

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The unchallenged monopoly power of the Big Three led to sloppy work. Examples included misleading assessments of municipal debt in the 1970s (eg Penn Central), the issues of mutual thrifts and credit unions in the 1980s (eg Savings and Loans), and derivative hedges in the 1990s (eg Orange County), and then, in the early 2000s, the poor assessment of highly leveraged corporate conglomerates (eg Enron and Parmalat).5 In all these cases the rating agencies gave the troubled entities high credit scores all the way up to the moment of crisis. Yet despite this evidence of fallibility, their business expanded exponentially as demand for investment grade securities grew after 2000. Earlier failures could be ascribed to ineptitude in understanding new forms of financial engineering and the concomitant opportunities for financial fraud. Those failures could be quarantined as posing no threat to the stability of the vast and sophisticated debt markets developing from the mid-2000s. Fuelled by the regulatory licence and prudential requirements, the rating business continued to grow. As it turned out, the deeper threat to the quality of ratings lay not in financial novelties alone, but in the historic move to issuer pays. This move brought with it a risk of corrupting conflicts of interest in the rapidly expanding financial sector. Securitised debt issues accelerated from the early 2000s as banks discovered they could package large tranches of mortgage debt of varying default risk, so as to generate seemingly solid securities backed by land assets as suitable investments for large banks, insurers, municipalities, and pension funds.6 But these issues, now dauntingly complex, had to be rated high, typically triple-A, in order to be sold to the largest institutional buyers, both as a mandate of the regulatory licence regime, and as a counsel of prudence for fund managers, especially when they were in a chain of intermediation and owed fiduciary and prudential duties down the line. An issuer could recover the cost of a rating (if favourable) more than 10 times through the heightened value and marketability of the debt issue, and pressures were applied to the rating agencies to give the necessary ratings; that is, to certify the top tranches of structured products as bearing close to zero default risk. Post-issuance, the head parties might specify an ongoing requirement to seek and report fresh ratings as a monitoring and renegotiation mechanism, further welding the credit rating agencies into the issuers’ business models.7 With so much continuous business and profit at stake, the agencies were happy to cooperate with the issuers. Most of the rating business came from some 10 leading issuers, and even with the powers of an oligopolist, no one agency could bear to see a major issuing bank take its business to a rival. So unjustified ratings might be offered to keep a lucrative client on side, and the agencies might even help the issuer in designing complex packages of synthetic secured debt to attain the desired rating.8 Independent professional judgment was thus compromised. If the rating process became embedded in the issuing businesses, the credit rating industry market share calculation required by Article 8d of Regulation 1060/2009 on Credit Rating Agencies as amended (December 2015). 5 H Langohr and P Langohr, The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant (New Jersey, Wiley, 2009) 189–91; L White, ‘Credit-Rating Agencies and the Financial Crisis: Less Regulation of CRAs is a Better Response’ (2010) 25 Journal of International Banking Law and Regulation 170. 6 T Adrian and H Song Shin, ‘The Changing Nature of Financial Intermediation and the Financial Crisis of 2007–2009’ [2010] Annual Review of Economics 603. 7 For examples, see Deutsche Trustee Co Ltd v Cheyne Capital (Management) UK (LLP), Deco 15—Pan Europe 6 Ltd [2015] EWHC 2282 (Ch); CBRE Loan Servicing Ltd v Gemini (Eclipse 2006-3) plc [2015] EWHC 2769 (Ch). 8 Financial Crisis Inquiry Commission (n 1) 42–44, 118–22, 146–50, 206–26 and passim; Langohr (n 5) 407–28.

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they also became a crutch for investors, who came to rely heavily on the default assessments of the sophisticated and government accredited rating agencies. Thus actors on both the sell and buy sides began to abandon the exercise of independent judgment, as they delegated not only information collection, but also risk and price calculation, to the three main credit rating agencies. Some observers feared a new type of corporatist capitalism was emerging, more akin to central planning led by a tight elite of bureaucrats.9 But was the system of delegated judgment viable?

D. The Reckoning It was the 2007–08 financial crisis, and most spectacularly the AIG and Lehman failures in September of 2008, that finally undermined confidence in the rating agencies’ competence and independence. AIG and Lehman were given AAA and AA ratings by the Big Three up to the very moment of their collapse. A defence given by the agencies was that an expectation of political rescue was always built into those ratings, and those expectations were falsified by real-time government decisions that surprised everybody. But even this extraordinary assumption could not explain the massive over-rating of mortgage-backed securities that was the upstream cause of the 2007–08 crash. For example, in late 2007 Moody’s downgraded 83 per cent of the $869 billion in mortgage securities it had rated in 2006 as AAA investment-grade with negligible chance of default. In that year Moody’s had taken $881 million in profits from rating mortgage-backed securities alone—more than the rest of its business combined. Standard and Poor’s record was no better.10 Error of this scale could not be dismissed as a black swan event or political blip; private companies taking huge profits in a quasi-public gatekeeper role had clearly failed badly in their primary mission. A damning assessment was offered by the Financial Crisis Inquiry Commission of the US Government in January 2011: ‘The three credit rating agencies were key enablers of the financial meltdown … Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms’.11 Even the insiders could be (self)-critical: ‘These errors make us look either incompetent at credit analysis or like we sold our souls to the devil for revenue, or a little bit of both’ was the reflection of a Moody’s managing director in late 2007.12

E. The Clean-up Despite the glaring problems, governments have struggled to restructure or regulate the credit rating agencies after 2008. The politics of reform was especially fraught, as national governments criticised the rating agencies for downgrading or threatening to downgrade

9 A Bhidé, A Call for Judgment—Sensible Finance for a Dynamic Economy (New York, Oxford University Press, 2010). 10 Figures for Moody’s and Standard and Poor’s from Financial Crisis Inquiry Commission (n 1), summarised at xxv. 11 Financial Crisis Inquiry Commission (n 1) xxv. 12 Quoted in A Darbellay, Regulating Credit Rating Agencies (Cheltenham, Edward Elgar, 2013) 3.

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public issues during the Eurozone crisis and the US debt ceiling controversy.13 Nonetheless, new public controls of the rating agencies have been attempted. One dead end has been the legal sanctioning of individuals responsible for the ratings debacle. In the United States it has proved nearly impossible to prosecute individuals for fraudulent conduct or breach of securities laws, no matter how egregious the conduct uncovered. Indeed, Congressional hearings in 2009 revealed that no rating analysts had been fired or disciplined at the Big Three after the almost complete failure of ratings in the mortgage-backed securities sectors. This lack of personal accountability proved a general problem in the wake of the 2008 crisis: diffusion of responsibility through large financial organisations seems to have granted immunity to all who work within them, and regulators seeking modest victories preferred to enter into plea bargains with firms, leading to negotiated fines and promises of voluntary reform, without any admissions of liability or even commencement of trials.14 Nor were actions against the rating agencies as entities with collective responsibilities notably successful before 2015. Up to that date, some 41 suits against Standard and Poor’s alone were dismissed, usually on the dual grounds that the ratings were mere opinion akin to editorial comment in the press, rather than commercial statements like those issued by auditors or financial advisers; and further that these statements of opinion were addressed to the entire public rather than any closed class of individuals, and so could attract First Amendment protection as free speech.15 In 2009 these defences were jettisoned by courts in New York16 and California,17 holding that an assessment of financial risk, issued by a profitmaking agency and addressed not to the public at large but to a particular targeted class of investors in order to promote trades, did not attract First Amendment protection, and was not comparable to opinions in the financial press. In the wake of these judgments, the share prices of Moody’s and Standard and Poor’s declined to half of their record highs as of June 2007, and many shareholders divested, including Warren Buffett, who reduced his 12.1 per cent holding of Moody’s stock by half.18 After further suits were brought in New York,19 Moody’s reached a confidential out-of-court settlement in 2013 in order to avoid an adverse legal precedent that might have harmed its business model.20 Encouraged by this litigation breakthrough, in 2013 the Federal Government and a number of states filed a £5 billion law suit against McGraw Hill, the parent company of Standard and Poor’s, using the new tactic of suing for misrepresentation and deceit under anti-fraud legislation from the Savings and Loans era.21 In February 2015, McGraw Hill settled the US suit against Standard 13 ‘The

EU and credit rating agencies: Poor Standards?’ The Economist (London, 20 December 2013). States Senate Subcommittee on Investigations, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse (Washington DC, The Senate, 2011) 243–317; B Garrett, Too Big to Jail: How Prosecutors Compromise with Corporations (Cambridge MA, Harvard University Press, 2014); Darbellay (n 12) 78. 15 G Shorter and M Seitzinger, Credit Rating Agencies and Their Regulation (Washington DC, Congressional Research Service, 3 September 2009); ‘Free Speech or Knowing Misrepresentation?’, The Economist, 5 February 2013. 16 Abu Dhabi Commercial Bank v Morgan Stanley & Co 651 F Supp 2d 155 (SD, New York, 2009). 17 California Public Employee’s Retirement System v Moody’s (CalPERS) Order of demurrer (motion to dismiss) No 09-490241 (Calif CA, 1st District, 2009). 18 J Lippert, ‘Credit Ratings Can’t Claim Free Speech in Law Giving New Risks’ Bloomberg Business (New York, 8 December 2010). 19 Abu Dhabi (n 16); Abu Dhabi Commercial Bank v Morgan Stanley & Co 888 F Supp 2d 431 (SD, New York, 2012); King County 863 F Supp 2d 288 (SD, New York, 2012). 20 S Patel, ‘In a Surprise Move, S&P and Moody’s Settle Lawsuit’ Market Watch (New York, 29 April 2013). 21 United States of America v McGraw-Hill Companies Inc, et al No 13-0779 (CD, Calif, 2013). 14 United

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and Poor’s for the record sum of $1.5 billion. McGraw Hill simultaneously settled claims from the California Public Employees Retirement System for $125 million and the Securities and Exchange Commission for $81 million.22 A condition of the Standard and Poor’s settlements was that no wrongdoing or violations should be registered against the firm. So, on one account, this was yet another example of a miscreant firm buying off justice, albeit at a high dollar price. Just how high may be debated: by one estimate this global settlement amounted to all the profits Standard and Poor’s had made between 2002 and 2007 from rating mortgage-backed securities; by another measure it represented just one year of current net earnings. By early 2014, the profitability of the Big Three had returned to exceed 2007 levels, perhaps in part because government requirements for more careful risk management of complex financial products enhanced demand for their services.23 What of changes to the legal and regulatory environment to constrain the rating agencies in the future? Were lessons learned from 2008—and acted upon? In the United States the Dodd-Frank Act of 2010 made two significant changes. First, ratings were defined to be a type of professional commercial service, akin to auditing and investment banking advice.24 This cleared away two important defences that had been used successfully by the rating agencies to fend off law suits; henceforth ratings were neither (i) mere opinion protected under the securities laws, nor (ii) constitutionally protected free speech. Secondly, the public mandating of use of nationally recognised rating agencies that had begun in the 1930s was also removed by Dodd-Frank—partly to reduce reliance on ratings generally in the markets and partly to encourage fresh entrants—and the Federal Reserve and the Securities and Exchange Commission were charged with creating new rating systems, including enhanced oversight of the existing industry. Results of this reform process are yet to emerge, partly due to industry lobbying, and partly because the regulators remain unsure how best to proceed. One result of the stripping of legal defences and the Standard and Poor’s settlement has been a sharp rise in rating agencies’ fees, and more aggressive use of contractual disclaimers, but there has been no discernible diminution of the rating business.

II. Liability in the Anglo-Commonwealth Common Law The work of the rating agencies extended across the globe as securitisation of mortgage loans fuelled heavy trading in the 2000s. In 2008–09 the rapid downgrading of mortgagebacked assets inflicted heavy losses on Eurozone and British banks, with Lloyds, the Royal Bank of Scotland, and Northern Rock in the United Kingdom being partly or wholly

22 T Martin, ‘S&P Ratings, Calpers Settle Suit over Mortgage Deals for $125 Million’ Wall Street Journal (New York, 2 February 2015). 23 ‘Credit where credit’s due: the ratings industry has bounced back from the financial crisis’, The Economist, 19 April 2014; ‘Undue Credit: Regulation is helping the very firms it is designed to tame’, The Economist, 30 May 2015; for evidence of how regulation post-2008 adds to the rating business see Financial Conduct Authority, Supervisory Formula Method and Significant Risk Transfer FSA-FG11/14 (London, FSA, September 2011, revised October 2014) www.fca.org.uk/your-fca/documents/finalised-guidance/fsa-fg1114. 24 Securities and Exchange Commission, Dodd-Frank Act Rulemaking: Credit Rating Agencies (2014) www.sec.gov/spotlight/dodd-frank/creditratingagencies.shtml; V Dimitrov, D Palia, and L Tang, ‘Impact of the Dodd-Frank Act on Credit Ratings’ (2015) 115 Journal of Financial Economics 505.

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nationalised to avert collapse. In Australia, aggressive selling of complex financial products to local councils seeking to protect their reserves and pension funds had caused much destruction of capital, albeit on a smaller scale. This raised the issue of whether the rating agencies could be sued under English or Australian common law. In England the case law indices reveal that no such actions seeking to attach the credit rating agencies have yet been brought. This may mean that litigants and their counsel have made a fair assessment that the English courts would not see any path to liability for rating agencies. But Australia tells a different story. Our enquiry now turns to properly doctrinal arguments touching the liability of rating agencies, since English and Australian law does not use the overt policy language of American law. It has long been established that financial representations made between contractual parties can be actionable, even if those statements could be characterised as predictions of future market performance, rather than observation of verifiable present fact. Statements involving a degree of prediction could be made in a deceitful or negligent fashion by distorting present facts and probabilities, especially where the representor had special knowledge and skill in understanding a particular market.25 It is far more difficult to establish liability for financial representations causing pure economic loss outside a direct relationship in contract or trust. Even if the parties are not in privity, a statement can give rise to liability in tort where it is made to a sufficiently identified set of persons, who reasonably rely upon the verity of the statement and who suffer foreseeable loss as a result of it being inaccurate. The courts have used the language of foresight, proximity, reliance, and assumption of responsibility variously to explain the cause of the representor’s liability. But such liability can readily be excluded if the representor expressly disclaims liability, whether to privy parties or to third parties outside privity. In the case of credit ratings, liability might be twice excluded. Issuers can disclaim any responsibility to purchasers for the risk profiles of their product, provided they make no culpable factual misrepresentations about the product; buyers are thus put on notice that they shoulder the risk of poor future performance: caveat emptor. At the same time, rating agencies which validate these issues disclaim any legal liability for the accuracy of data supplied to them by issuers as the basis of the rating calculation; and then the agencies expressly disclaim any guarantee of the robustness of their ratings, stating that these are best possible professional opinions about the future, but refusing any responsibility to reliant third parties for errors of analysis or calculation. The ratings are held out as just one form of information and opinion, based on provisional knowledge and modelling techniques, to help investors make their own entrepreneurial calculations. Thus, purchasers of securities, be they banks, mutual funds, pensions, or insurance pools, and who themselves have a duty to make prudent investments with due professional care, are left with a dilemma. They are forced by regulation and market structure to delegate the technical assessment of investments to outside rating agencies with monopoly power and with whom they have no contractual relationship. Their hope is that reliance on a top rating by a reputable agency will by itself amount to an acquittal of the duty of due diligence and prudence in choosing investments.26 But responsibility for the risk assessment is not accepted by the rating 25

Esso Petroleum Co Ltd v Mardon [1976] QB 80 (CA) gave an articulate expression of this point. A problem trenchantly analysed by T Molloy, ‘I am a trustee. I can’t make head or tail of Po=SoN(d1) -XertN(d2)…. Am I at risk?’ (2009) 15 Trusts & Trustees 524. 26

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agencies themselves. The rating agencies use contracts of adhesion to limit or eliminate the liabilities they owe to direct counterparties; and the rating advices themselves stipulate that no legal responsibility for the accuracy or competence of the advices can be accepted towards any further persons who might use, or rely upon, that advice. This leaves us with a conundrum: the whole point of the rating is for it to be relied upon by purchasers; yet no one in the investment process, neither the issuer who pays for the rating, nor the agency who makes it, will accept responsibility for a poorly made and inaccurate rating. If liability for prudent assessment of securities values is thus excluded at every link in the chain of intermediation, the law in effect allows losses to lie where they fall, typically with the ultimate beneficiary investor, who has little or no control over the chain of intermediation. The common law has slowly developed some answers to this conundrum of representors who knowingly invite reliance, are handsomely paid for doing so, and yet reject all responsibility for misstatements. But the path to these answers has many twists and turns, as we will show.

A. The Legacy of Caparo v Dickman Let us begin by considering the English approach to the liability of financial institutions vis-à-vis third parties. The 1990 case of Caparo Industries plc v Dickman (Caparo)27 is the leading English authority on the duty of care owed by auditors, including to third parties. It built on, and perhaps refocused, the law on pure economic loss inaugurated by the seminal decision of Hedley Byrne & Co Ltd v Heller & Partners Ltd (Hedley Byrne v Heller).28 In Caparo, the House of Lords considered a claim for negligent misstatement by auditors in the audit report prepared for the company. The House of Lords held that the purpose of the audit, in accordance with the English statutory scheme, was to provide information to the company and its shareholders so as to enable them to exercise their rights in their respective capacities. As such, the auditors owed a duty of care to the company and its shareholders as a whole and in their capacity as shareholders. However, the auditors did not owe a duty of care to a member of the public who relied on the accounts to invest in the company or to an individual shareholder in their capacity as a potential investor.29 The applicable test was either the threefold test of foreseeability, proximity, and what is just and reasonable,30 or the assumption of responsibility test.31 To establish that the auditors owed a duty to a third party, it was necessary to prove that the auditor knew that its conclusions would be communicated to the third party in connection with a specific transaction and that the third party would be likely to rely upon those conclusions in relation to it.32 The requisite r elationship 27

Caparo Industries plc v Dickman [1990] 2 AC 605 (HL). Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL); also Mitchell (AP) v Glasgow City Council [2009] AC 874 (HL); Moore Stephens v Stone Rolls Ltd [2009] 1 AC 1391 (HL). For close doctrinal scrutiny of Hedley Byrne v Heller and its aftermath see K Barker, R Grantham and W Swain (eds), The Law of Misstatements: 50 Years on from Hedley Byrne v Heller (Oxford, Hart Publishing, 2015). 29 Caparo (n 27) 620–23 (Lord Bridge); 650 (Lord Oliver); 657–60 (Lord Jauncey); 627–29 (Lord Roskill agreed with the judgments of Lord Bridge, Lord Oliver and Lord Jauncey, and added a few observations); 629 (Lord Ackner agreed with all four judgments). 30 ibid 617–18 (Lord Bridge), 637–42 (Lord Oliver); 655–56 (Lord Jauncey). 31 See Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) 181. 32 Caparo (n 27) 642 (Lord Oliver). See also ibid 620–21 (Lord Bridge); 657–58 (Lord Jauncey). 28

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of proximity did not obtain between the auditors and a member of the public who bought shares in the company.33 Further, Lord Oliver stated that there was no good reason of policy to extend the duty of care to this relationship, even though it was foreseeable that potential investors might rely on the audit report in making their investment decisions.34 The House of Lords also held that the auditors did not owe a duty of care to an individual shareholder seeking to buy further shares in the company because the duty of care owed to shareholders was owed to them only in their capacity as shareholders.35 The purpose of the audit report was central to these findings: the statutory duties of the company’s auditor were not intended by parliament to protect the interests of investors in the market, nor to enable individual shareholders to engage in speculation with a view to profit.36 In reaching its decision, the House of Lords approved an earlier decision of Millett J (as he was then) in Al Saudi Banque v Clark Pixley37 where Millett J held that the statutory duty to report to the company and its members did not give rise to a duty of care to the company’s lenders. Notably, in that case, the auditors had not sent the report to the lenders, nor had they sent copies of the report to the company with the intention or in the knowledge that the company would supply the report to the lenders. Auditors, it was held, do not owe a duty of care to creditors of the company (even though creditors are more easily identifiable than potential investors) because the purpose of the audit is not to provide information to them. The principle in Caparo thus provides that liability for economic loss caused by negligent misstatement is limited to cases where the statement was made to a sufficiently defined recipient for a specific purpose of which the maker was aware, and the recipient incurred loss in reliance upon that statement, where such reliance was reasonable and foreseeable by the maker of the statement. Subsequent applications of the Caparo principle have emphasised that the purpose for which the statement is made is central in determining to whom the maker of the statement owes a duty in respect of that statement and the scope of that duty. An early and significant example of a restrictive application of the Caparo doctrine is provided by James McNaughton Paper Group Ltd v Hicks Anderson & Co,38 where a report requested from accountants just prior to a takeover on an urgent basis was held not to satisfy the Caparo tests so as to arouse a duty of care, especially since the defendant accountant labelled the report as a preliminary draft, and further because the plaintiff used independent advisers and could not be seen to have sufficiently relied on the report in launching the takeover. The case is significant as the first application of Caparo, involving a reversal of the pre-Caparo first instance decision. The Caparo principle has also been applied to deny recovery to creditors defrauded by the directors of a failed company where the creditors’ relationship to the negligent auditors arises because the liquidators representing the c reditors stand in the shoes of the company under the statutory insolvency regime. Where the company is closely held the fraud of the directors is attributed to the corporate entity so as to block negligence claims on behalf of the company caused ultimately by that

33

ibid 618–23 (Lord Bridge); 649–50 (Lord Oliver); 660–61 (Lord Jauncey). ibid 649–50 (Lord Oliver). Lord Roskill echoed Lord Oliver’s concern: ibid 629. 35 ibid 626–27 (Lord Bridge); 651–52 (Lord Oliver); 662 (Lord Jauncey). 36 ibid 620–23 (Lord Bridge); 629 (Lord Roskill); 649, 653–54 (Lord Oliver); 657–60 (Lord Jauncey). 37 Al Saudi Banque v Clark Pixley [1990] BCLC 46; [1990] Ch 313. 38 James McNaughton Paper Group Ltd v Hicks Anderson & Co [1991] 2 QB 113 (CA). 34

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fraud.39 While the restrictive Caparo principle might seem to rule out many claims by third parties for loss suffered in reliance on negligent statements, the courts have emphasised that these cases are particularly fact-sensitive.40 The questions for delimiting rating agency liability thus become: For what purpose is the rating provided? Is the recipient of the rating advice sufficiently identified? Should the rating agency be responsible through attribution for negligent or fraudulent conduct by the issuer that renders the rating advice unsafe? And is any initial ascription or assumption of responsibility rendered defeasible by exemption or disclaimer?

B. Refining and Extending the Doctrine of Pure Economic Loss Since Caparo, the courts have grappled with the extension of liability for pure economic loss and what it means to assume responsibility for a statement vis-à-vis a third party. In the 1995 case of White v Jones41 the House of Lords held that a solicitor who was negligent in drawing up a testator’s will owed a duty of care towards a disappointed beneficiary. Lord Goff held that some assumption of responsibility ‘as a general rule’ was the key fact establishing liability for pure economic loss, but that the legal duty that follows that factual assumption of responsibility can be imputed objectively if it is fair to do so.42 Lord Browne-Wilkinson expanded this finding, reinterpreting Caparo to mean that in order for liability to arise there must be ‘a conscious assumption of responsibility for the task rather than a conscious assumption of legal liability to the plaintiff for its careful performance’.43 While English law does not impose a general duty of care to avoid negligent misstatements or to avoid causing pure economic loss even if that loss was foreseeable, such a duty will arise where there is a special relationship between the parties. The categories of special relationship were not closed, although thus far only two had been identified: where there is a fiduciary relationship, and ‘where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice’.44 Lord Browne-Wilkinson accepted that neither of these categories covered the circumstances in White v Jones. Nonetheless, he held that a duty of care was justified in the circumstances and that the negligent solicitor owed a duty of care to the disappointed beneficiary.45 There is a strong whiff of backwards reasoning at work here; that is, because the Court thought liability was justified, a special relationship allowing a finding of assumption of responsibility was conjured, where no such assumption had been present to anyone’s minds. Perhaps the better approach would be to see the solicitor’s promise to carry out instructions under the contract as a claim held by the testator under a present but defeasible equitable obligation to secure the benefits of the drafted will for the ultimate beneficiaries,

39 Compare Stone & Rolls Ltd v Moore Stephens [2008] EWCA Civ 644; [2009] 1 AC 1391 (HL); and Bilta (UK) Ltd v Nazir (No 2) [2016] AC 1 (UKSC). 40 Electra Private Equity Partners v KPMG Peat Marwick [2001] 1 BCLC 589, 614 (Auld LJ) (CA). 41 White v Jones [1995] 2 AC 207 (HL). 42 ibid 256–57, 262, 268–70. 43 ibid 274. 44 ibid 274–75. 45 ibid 275–76.

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especially since the testator’s interests were aligned with those of the beneficiaries. Once the identities of the beneficiaries of the intended will were discovered, they could claim under the contract as if by subrogation and so sue for their losses caused by the solicitor’s negligent failure to arrange the will.46 Whatever the status of the specific White v Jones exception, it does make clear that Caparo does not forestall the development of new categories of special relationship and that the focus will be on what the defendant undertook to do or be responsible for, as construed objectively. The courts have gone on to find that an adviser’s knowledge of the precise use and reliance that an identified third party would likely make of an advice can establish a duty of care to that third party, using the assumption of responsibility doctrine. Thus where an accountant negligently certified that a troubled firm had lodged proper accounts, knowing that these accounts would be relied upon by a regulator investigating the firm, a duty of care arose between accountant and regulator when defalcations came to light that the regulator was required to compensate.47 This approach was endorsed by the House of Lords in the 2006 case of Customs and Excise Commissioners v Barclays Bank plc.48 In that case a bank owed no duty of care to a third party to take reasonable care to comply with the terms of a freezing injunction granted to the third party against one of the bank’s customers. Lord Hoffmann observed that where loss has been caused by the claimant’s reliance on information provided by the defendant, it is critical to decide whether the defendant (rather than someone else) assumed responsibility for the accuracy of the information to the claimant (rather than to someone else) or for its use by the claimant for one purpose (rather than another).49

The answer to that question did not depend on what the defendant intended, but rather on ‘what would reasonably be inferred from his conduct against the background of all the circumstances of the case.’50 Lord Hoffmann observed that ‘[i]t is equally true to say that a sufficient relationship will be held to exist where it is fair, just and reasonable to do so’.51 In determining the apparent purpose of a communication between the parties, the courts will have regard to the reality of the economic relationship between the parties and the nature of the markets in which they were operating.52 The other judges similarly emphasised factual context, admitting that the state of doctrine since Caparo was rather uncertain. Further guidance was given in MAN Nutzfahrzeuge AG v Freightliner Ltd,53 a case concerning an auditor’s liability to the parent company of a subsidiary. The subsidiary was given a healthy profit report by the auditor to support its sale to the claimant MAN. A director had fraudulently misrepresented the subsidiary’s finances, and the auditor had negligently failed to discover this. The parent company had to pay damages for losses on 46 For example, under the doctrine of Lord Napier and Ettrick v Hunter [1993] AC 713 (HL). The equity to claim under a contract for contingent benefits can survive the ending of the contract: Re Lind [1915] 2 Ch 345 (CA). 47 Law Society v KPMG Peat Marwick [2000] 1 WLR 1921 (CA). 48 Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181 (HL). 49 ibid [35]. 50 ibid [35]. 51 ibid [36]. 52 Lord Hoffmann’s approach in this area of tort is congruent with his theories of contractual interpretation; see further J Getzler, ‘Interpretation, Evidence, and the Discovery of Contractual Intention’ in S Degeling, J Edelman and J Goudkamp (eds), Contracts in Commercial Law (Sydney, Thomson, 2016). 53 MAN Nutzfahrzeuge AG v Freightliner Ltd [2007] EWCA Civ 910, [2008] 2 BCLC 22.

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the sale caused by the fraud. Chadwick LJ held that the parent company could not seek indemnity from the auditor, because it had predominantly been the fraudulent director’s use of the accounts that had caused the losses and no further responsibility on the part of the auditor had been assumed to cover such a fraud from within the corporate group itself: To hold that the auditors assumed responsibility for the use which a dishonest employee of the audited company might make of the accounts in the context of the parent company’s negotiations for the sale of the company would, I think, be to impose on them a liability greater than they could reasonably have thought they were undertaking.54

The Court of Appeal noted that, as held in Caparo, mere foresight (that a third party would rely on a statement and could suffer loss in doing so) is not enough to give rise to a duty of care to that third party.55 The court must consider the purpose for which the statement or communication were made and that purpose must be judged objectively. The question to be asked is: whether a reasonable person in the position of the claimant would conclude from the circumstances in which the statement was made or communicated to him that the purpose for which the statement was made or communicated to him included protecting him from a type of loss which he suffered in reliance on the statement.56

Thus, again, we see that in order to determine whether a duty of care is owed to a third party, and the scope of that duty, the court must consider the purpose of the communication made to the third party and that purpose must be construed objectively. By way of example, a duty of care may exist between the auditors of a company and the company’s lender bank where it was anticipated by the auditors that the reports, although provided to the company, would be forwarded to the bank and relied on by the bank; and the auditor knew that the whole purpose of the report was to reassure the third party bank to maintain the credit line, and in such circumstances an assumption of responsibility to the third-party bank could be found.57 What can we take from this? First, the purpose of the statement is central to determining the existence and scope of a duty owed to third parties. The central question, when considering a negligent misstatement by a rating agency, will be for what purpose did the rating agency communicate the rating and did that purpose include protecting the claimant from the type of loss suffered. The purpose of audit reports—particularly given the statutory context—is generally to inform the company and shareholders and to allow them to exercise their rights in those respective capacities. But some audit reports are expressly prepared to assist and advise third parties in wider roles, including investors calculating investment decisions. In such cases a wider liability for misstatements ought to be possible. Secondly, English courts are far more willing to recognise a duty of care where the object of the duty is determinate. Turning to a rating agency, whether it owes a duty of care to a third party (a specific individual or a class) will depend upon the court’s characterisation of the purpose of ratings 54

ibid [42], [54]–[59]. ibid [56]. 56 ibid [35]. 57 Barclays Bank plc v Grant Thornton UK LLP [2015] 2 BCLC 537 (Comm). The auditors in this case escaped liability due to a tightly drawn disclaimer of responsibility; absent such disclaimer a duty and liability may have arisen. 55

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and thus whether the rating agency can be said to have assumed responsibility towards a particular third party as an individual, or as a member of a contemplated class. The fact that the rating agency foresaw that a third party might rely on the rating and suffer loss will not be sufficient to ground a duty of care to that third party; but to invite reliance from a determinate class of representees might cross the line into liability. Such liability might work in the same vein as the liability of surveyors who know that their valuation reports will be used by specific or determinable third parties as a basis for their purchasing decisions, and where the point of their valuation was to facilitate that purchase, as demonstrated in the House of Lords case of Smith v Eric Bush.58 That case immediately preceded the decision in Caparo, and the Court in Caparo was at pains to distinguish it on the basis that to have indeterminate or even determinate parties use a report for a different purpose than that for which it was intended precluded any duty of care from arising.

C. An Australian Breakthrough? The story, as we foreshadowed, is somewhat different when we come to recent developments in Australia, where a major claim against a rating agency has now succeeded. In the 2014 Australian appeal case of ABN AMRO Bank NV v Bathurst Regional Council (ABN AMRO),59 the Federal Court considered the position of a rating agency that had negligently issued a flawed rating for a ‘grotesquely complex’ financial product, with strong suspicions that it had messed up the calculations. The agency, Standard and Poor’s, had relied heavily on the risk models provided to it by the issuer ABN AMRO, and had failed to devise its own robust and independent testing systems. It had also accepted the data provided to it by the issuer, which turned out to be tainted. Suspecting that both data and model were problematic, and discovering some crass calculative errors of its own, the Standard and Poor’s executives had nonetheless stood by their public rating of the issued products as AAA investment grade, though they strongly suspected that this assessment could not be justified. There was good evidence that Standard and Poor’s feared reputational loss if they owned their mistakes and revised the rating, and also that they did not want to lose the business of ABN AMRO as a lucrative client. Another financial intermediary, LGFS, stood in a fiduciary relationship with a raft of local councils as their financial adviser and broker. LGFS induced those clients to buy the ABN AMRO issues, professionally advising the clients that these were safe investments fit for purpose, but failing to reveal that LGFS as intermediary wanted to offload the large stock of ABN AMRO securities it had procured for onward sale in order to reduce its own exposure and realise its profits. The supposedly AAA-rated issues declined precipitously in value and the councils sued each of Standard and Poor’s, ABN AMRO, and LGFS. The three defendants—rating agency, issuer, and intermediary/broker—were held to be jointly and severally liable, under common law tort duties and additionally under statutory duties to avoid misleading and deceptive conduct. Standard and Poor’s was liable because it knew full well that the purchasing councils relied

58

Smith v Eric Bush [1990] 1 AC 831 (HL), discussed further below. ABN AMRO NV Bank v Bathurst Regional Council [2014] FCAFC 65. For further discussion of this decision, see Arvind and Gray, ch 12. 59

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on its professional skill as a rating agency where the councils lacked the capacity to analyse the issuer’s securities. Moreover, Standard and Poor’s knew that the councils were entirely reliant on its rating and due to regulatory requirements needed that rating in order to be able to enter that very market. The issuer who had knowingly supplied the rating agency with incorrect information could also be said to have an accessorial liability for the flawed rating, or alternatively could be subject to a co-ordinate liability under the doctrine of equitable contribution. LGFS was further in breach of its own fiduciary duties to the claimant councils, but could in turn recover in cross-actions against the issuer and rating agency who had misled LGFS as well. A defence of contributory negligence by the councils who might have tested the investment products themselves or sought their own professional advice was rejected, and strongly worded exclusion clauses by the rating agency denying legal liability to reliant third parties were held to be ineffective. The case is of high significance, not only for its results, but for the detailed and lucid forensics offered up in some four thousand paragraphs of judgment by the primary judge Jagot J,60 and the careful parsing of doctrine by the Full Federal Court, led by Jacobson J. Four further observations may be made. First, Jacobson J in an earlier case had upheld the contractual exclusions of liability by an investment bank in dealing with a sophisticated client in a case of fiduciary advice in a hostile merger, and is regarded as a skilled commercial judge well attuned to the business world.61 Secondly, this case was the first judgment in the common law world to shine a searching light into the techniques of the rating agencies and to find liability for inadequate work causing loss. Thirdly, the findings of the Federal Court were based on both common law and statutory duties, and so it is wrong to suppose (as English commentators have suggested)62 that the result emerges solely from a local statutory context. In finding a common law tort liability the Full Federal Court noted that: Standard and Poor’s knew that the rating of the notes it provided to ABN AMRO would be published in Australia and to potential purchasers of a known class; Standard and Poor’s authorised publication; and the entire purpose of the arrangement between Standard and Poor’s and ABN AMRO was to enable the marketing of the product by inviting reliance on the rating by prospective purchasers.63 These facts make the case significantly different from Caparo. Finally, it may be that the arguments mounted and information exposed in this massively detailed case helped precipitate the major settlements in New York and California some six months later in early 2015. It was also significant that, despite the high value of the sums being litigated, and the enormous precedential value of the decision as an engine of liability for both issuers and rating agencies, the losing parties in ABN AMRO chose not to appeal the case to the High Court. It may be that the defending parties did not wish to throw the dice again and have liability affirmed, possibly in even stronger terms, by the highest-tier court of the jurisdiction. The probabilities of liability being affirmed in the High Court were strong, partly because of the superb forensic quality of the lengthy Federal Court judgments, and partly

60

Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. ASIC v Citigroup Global Markets Australia Pty Ltd [2007] FCA 963; J Getzler, ‘ASIC v Citigroup: Bankers’ Conflict of Interest and the Contractual Exclusion of Fiduciary Duties’ (2007) 2 Journal of Equity 62. 62 S Clarke and H Edwards, ‘Liability of Credit Rating Agencies Confirmed by Australian Appeal Court’ (London, Herbert Smith Freehills, 2014). 63 See ABN AMRO (n 59) [1357]. 61 See

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because the High Court, after some initial embrace of the Caparo principle,64 has tended not to accept the voluntaristic approach to pure economic loss found in Caparo requiring for liability a directed and purposive statement inviting reliance. Instead, the High Court ascribes responsibility ex lege using a complex of factors, emphasising knowledge and objective foresight of the impact of misstatements on a determinate individual or class, and the reasonableness of reliance by the claimant.65 This has allowed the Australian courts to extend duties of care more readily to classes of third parties whose type of loss is foreseeable and whose reliance on the representation is reasonable, such as potential investors. Notably, determinacy remains a central concern. But it is the class of affected persons and the nature of the loss that must be determinate, not the identity of a particular claimant. Standard and Poor’s had argued that no duty of care arose, because they did not know the identity of the investors.66 The Court rejected that submission.67 Standard and Poor’s had directed their representations to a sufficiently known and determinate class of persons being targeted municipal investors for whom the particular issues had been designed. Moreover, the nature of the risk or potential for loss (not the specific amount) to members of that class was sufficiently known in the circumstances of the case: only a limited number of prospective buyers of the issues existed, and Standard and Poor’s knew that their sole rating would be causative of those buyers taking on the risk of those issues, and hence would be exposed to steep losses if the risks were misstated.68 The Court was clear that there is no superadded requirement that the maker of the representation know the identity of the person who may rely on the representation and suffer loss.69 Indeterminacy thus remains a limiting factor in establishing duty and liability; but it is determinacy of an affected class and the nature of the loss that matters.

D. Exclusions as Negations of Primary Liability It is crucial to decide whether a credit rating agency can be said to invite serious reliance from a class of purchasers whilst integrating into the rating statement a disclaimer or exclusion of liability. This section investigates the resources of the common law to answer that question. The courts have made it clear that disclaimers can be effective across parts of tort law. Where the existence of a primary duty is dependent on the assumption of responsibility, one can avoid duty by disclaiming responsibility (and thereby avoid assuming the duty in the first place), or one can contain what one has assumed responsibility for by limiting liability (and thereby define and restrict the scope of the primary duty). It is also clear that 64 See Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, 250–52 (Brennan CJ), 257–58 (Dawson J), 260 (Toohey and Gaudron JJ), 276–86 (McHugh J). 65 See Perre v Apand Pty Ltd [1999] HCA 36, (1999) 198 CLR 180, 193–94 (Gleeson CJ), 210–21 (McHugh J), 302 (Hayne J); Sullivan v Moody [2001] HCA 59, (2001) 207 CLR 562; K Barker, ‘Negligent Misstatement in Australia’, in Barker et al (n 28) 319–44. See ABN AMRO (n 59) [587]–[588] applying the findings of Tepko Pty Ltd v Water Board (2001) 206 CLR 1, [47] (Gleeson CJ, Gummow and Hayne JJ) and [75] (Gaudron J). 66 See ABN AMRO (n 59) [578]–[588]. 67 ABN AMRO (n 59) [589]. For the Court’s rejection of a similar submission made by ABN AMRO, see [1260]–[1262]. 68 ABN AMRO (n 59) [591]–[594] 69 ibid.

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contractual disclaimers are effective as between the parties to the contract, provided that they do not fall foul of statutory controls of oppressive bargains requiring that disclaimers be reasonable. It is, however, unclear whether a disclaimer in a contract between two persons is effective against a third party’s claim in tort where that disclaimer is not addressed to the third party. The existence of a disclaimer as between two contractual parties is relevant, but not determinative, of the existence and scope of a duty vis-à-vis a third party. In contrast, limitations of liability may be chosen where the party seeking protection wishes to emphasise that the bargain is not imbalanced and oppressive in its primary consideration or exchange of valuable promises. Limitations, which operate at the secondary remedial stage, are unlikely to be deployed by a credit rating agency, which would want to assign all risks to the many purchasers who rely on its ratings, and so deny all primary duties by denying any possible assumption of responsibility in the first place. The view that disclaimers operate on the primary duty is consistent with the fact that disclaimers are not effective in respect of many torts. This is because many duties recognised and enforced by tort do not depend on an assumption of responsibility by the defendant. I owe you a duty not to injure you negligently. The existence of my duty does not necessarily depend upon me assuming legal responsibility not to injure you negligently, but rather that by my actions I have placed myself into a position of responsibility for your safety. And so the existence of the duty is not susceptible to a denial of assumption of responsibility.70 Similarly, the view that disclaimers operate on the primary duty is consistent with the fact that disclaimers are effective in respect of contractual obligations. The contractual obligations owed by a contractual party depend on the voluntary assumption of those obligations and thus they are susceptible to disclaimers to the effect that one did not voluntarily assume a particular obligation. Further, this view is consistent with the approach taken in modern case law. In Smith v Eric Bush71 the House of Lords held that a purchaser of a house could rely on a survey provided contractually to the vendor/finance provider, since the purchaser had provided the consideration for the survey and the surveyor knew very well that the survey would be relied upon by her and her alone to decide if the house was a sound purchase. In other words, the valuations of the house for the purpose of securing the loan and for the purpose of checking the soundness of the house for that particular purchaser were inextricably linked. The surveyor’s exclusion of liability of the primary tort duty that arose by operation of law failed because the language of the Unfair Contract Terms Act 1977 was held to be effective to control exclusions of primary as well as secondary liabilities, at least where the reliance of the third party on the due performance of the primary duties is foreseeable and expected and that reliance provides the economic grounding for the entire transaction. In Barclays Bank plc v Grant Thornton UK LLP72 by contrast, Cooke J emphasised that parties could not be taken to have assumed responsibility where they expressly asserted they were not assuming responsibility.73 In other words, if a disclaimer of responsibility is effective, no primary duty grounded in the assumption of responsibility

70 Some would express this argument in terms of rights of the claimant rather than duties of the tortfeasor, but the results are similar; cf R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 34. 71 Smith v Eric Bush (n 58). 72 Barclays Bank plc v Grant Thornton UK LLP [2015] 2 BCLC 537 (Comm). 73 ibid [41].

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can arise.74 Similarly, in White v Jones Lord Goff suggested that the assumption of responsibility towards the beneficiary by a solicitor when drafting a will would be subject to any term of the contract between the solicitor and the testator that might exclude or restrict the solicitor’s liability to the testator.75 Thus it seems that an effective disclaimer can prevent a duty to a third party from arising in the first place. That, of course, is precisely what the rating agencies will be keen to ensure.

E. Disclaimers and Third Parties The case of Smith v Eric Bush suggested that where there was a valid primary duty of care owed to a third party, this could be reason enough to deny the efficacy of an exemption clause operating against the duties owed both to the head promisee under the contract and to the third party under a parallel tortious duty (in that case under legislative control of unfair contractual terms). It seems that the tort duty folded back to influence the Court’s assessment of the prior contractual duty. This prompts our next question: how do disclaimers that can be effective to dispel duties or liability within the contractual relationship operate against third parties outside the privity of contract? Hedley Byrne v Heller showed that where the defendant’s duty arises from an assumption of responsibility towards the claimant, the defendant can exclude that duty by addressing a disclaimer of the assumption of responsibility to the object of the duty that would otherwise arise. More difficult is the question whether a disclaimer in a contract between two persons is effective against a third party’s claim in tort; in other words, where the disclaimer is not necessarily addressed, or is not addressed directly and mediately, to the third party. The law is unclear and most (although not all) recent decisions have declined to decide the issue.76 The starting point in many of these cases is often seen to be the speech of Lord Brandon77 in Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd (Aliakmon).78 The House of Lords held that the plaintiff contracting buyers had no claim against the defendant ship-owners in tort for damage to the goods caused by bad stowage, because at that time the goods were owned by the sellers. In passing, Lord Brandon suggested that an exclusion of liability provision in the contract between the sellers and the ship-owners would not provide ‘a convincing legal basis for qualifying a duty of care’ owed to a third party.79 Then in Pacific Associates Inc v Baxter Purchas LJ stated:80 There can be no doubt of the force of Lord Brandon’s comment [in Aliakmon] as it stands. However, with great respect to the learned and noble Lord the absence of a direct contractual nexus between A and B does not necessarily exclude the recognition of a clause limiting liability to be imposed on A in a contract between B and C, when the existence of that contract is the basis for the creation of a duty of care asserted to be owed by A to B. The presence of such an exclusion clause while not being directly binding between the parties, cannot be excluded from a general

74

ibid [49]. White v Jones (n 41) 711. This was noted most recently by Cooke J in Barclays v Grant Thornton (n 57) [60]. 77 With whom the other members of the House of Lords agreed. 78 [1986] 2 All ER 145. 79 ibid 155. 80 Pacific Associates Inc v Baxter [1989] 2 All ER 159, 179 (CA). 75 76

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c onsideration of the contractual structure against which the contractor demonstrates reliance on, and the engineer accepts responsibility for, a duty in tort, if any, arising out of the proximity established between them by the existence of that very contract.

The issue was then considered by Neuberger J (as he was then) in Killick v PricewaterhouseCoopers.81 At issue in that case was whether an accountant appointed by the directors of a company to perform a valuation of the company’s shares, thereby setting the price at which the shares owned by certain shareholders were to be compulsorily acquired, owed those shareholders any duty of care; and, if so, whether the accountant’s liability towards those shareholders could be subject to a limitation clause in the contract between the company and the accountant; and, if so, whether the limitation clause satisfied the requirements of reasonableness in the Unfair Contract Terms Act 1977.82 The claimants were not parties to the contract, and so sued in tort.83 Moreover, the claimants had not been aware of the limitation clause in the contract.84 Neuberger J indicated that an exclusion or limitation of liability clause between two contracting parties is not binding on a third party, but will be relevant to the determination of whether a contractual party owes a duty to the third party and, if so, the scope of that duty. This issue then arose for consideration in the first instance decision of Moore-Bick LJ in MAN Nutzfahrzeuge AG v Freightliner Ltd.85 Moore-Bick LJ considered a limitation of liability clause that purported to limit the auditor’s liability to each company listed in the schedule to the engagement letter in respect of breach of contract or breach of duty or fault or negligence or otherwise arising out of or in connection to the engagement to a total of £2 million.86 It was submitted by the auditor that even if it owed a duty to the third party claimant, its liability for any breach of that duty was limited to £2 million because the third party was aware that the auditor was only prepared to carry out work on that basis.87 Moore-Bick LJ, in obiter dicta, suggested that contacts between defendant and third party were important because ‘the existence of a channel of communication provides an opportunity for the maker of the statement to exclude or restrict liability for errors’. Further, if the third party knew of the terms of the engagement letter purporting to limit any assumed responsibility, that might effectively restrict their liability.88 Most recently, the issue of disclaimers was considered in Barclays Bank plc v Grant Thornton UK LLP.89 Briefly, the audit report included a disclaimer to the effect that the reports were made solely to the company’s director for the purpose of assisting him to fulfil his duties under the terms of the loan facility and that the auditors did not accept or assume responsibility to anyone else. Barclays (who, together with another bank, were providing the facility) brought a claim against the auditors, alleging they were negligent in failing to uncover a fraud (perpetrated by two employers in relation to the group’s financial reports). 81

Killick v PricewaterhouseCoopers [2001] 1 BCLC 65 (Comm). ibid 70. ibid 73. 84 ibid 74. 85 MAN Nutzfahrzeuge AG v Freightliner Ltd [2005] EWHC 2347 (Comm), and see text accompanying nn 53–56, above. 86 ibid [407]. 87 ibid [408]. 88 ibid [411]. 89 Barclays Bank plc v Grant Thornton UK LLP [2015] EWHC 320 (Comm); [2015] 2 BCLC 537, and see text accompanying n 57, above. 82 83

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The auditors relied on the disclaimer and applied for summary judgment. Barclays argued that the disclaimer was ineffective because it had not been brought sufficiently to their attention or because it did not satisfy the requirement of reasonableness under the Unfair Contract Terms Act 1977. Cooke J gave summary judgment for the auditors. He observed:90 it is a vexed question whether or not an auditor whose liability is capped to its client by reason of contract can rely on such a limitation against a third party to whom a duty of care is found to exist.

Cooke J pointed to detailed discussion of this issue (although without resolution) in MAN Nutzfahrzeuge AG v Freightliner Ltd (at first instance)91 and Killick v PricewaterhouseCoopers.92 He then observed:93 Suffice it to say that it would be wholly unjust if the non-contractual entity could rely on statements made primarily to a client with a contractual limitation and assert responsibility on behalf of the auditor to it without any such limitation.

While Cooke J declined to decide the point, he noted that the uncertainty surrounding the state of the law lent force to the auditor’s argument that one of the purposes of a disclaimer was to avoid any such issues arising.94 He stated that the outcome will depend ‘on the reasonableness or otherwise of the disclaimer in all the circumstances of the case’.95 The question is: ‘whether a reasonable person in the position of Barclays could properly consider that [the auditor] was undertaking responsibility to it’.96 In this case, the third party bank was aware that the auditors did not like undertaking responsibility to persons other than their clients and often sought to avoid it, as in this case.97 Cooke J concluded that if the Court applied the test of whether, objectively, the defendants had assumed responsibility to the bank, a reasonable person in the bank’s position would not consider there had been such an assumption of responsibility because the disclaimer was clear and obvious, the bank was a sophisticated commercial party, the bank was aware auditors did not like undertaking responsibility to persons other than their clients, the bank did not engage or pay the auditors for their reports, and the auditors could not have been expected to do anything further to bring the disclaimer to the bank’s attention.98 The Courts’ obiter observations suggest that a disclaimer (or limitation of liability) between two contractual parties is relevant to, but does not determine, the existence and scope of the duty that may be owed to a third party. The extent to which the contractual party communicated with the third party will be relevant to determining what (if anything) the contractual party assumed responsibility for vis-à-vis the third party. That said, where the third party is a sophisticated commercial party, is aware of the disclaimer, and the disclaimer serves a legitimate purpose, it seems likely that the disclaimer will be effective as against the third party. 90

ibid [60]. MAN Nutzfahrzeuge AG (n 85). On appeal the Court found that the loss suffered was not of the type that would be covered by any duty the auditor might have owed to the third party, and the issues surrounding the operation of the disclaimer raised by Moore-Bick LJ were not aired: MAN Nutzfahrzeuge AG (n 53). 92 Killick (n 81). 93 Barclays v Grant Thornton (n 57) [60]. 94 ibid. 95 ibid [61]. 96 ibid [62]. 97 ibid [64]. 98 ibid [65]–[88]. 91

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F. In Restraint of Exclusions—the Use of Mind States The Federal Court of Australia had far less ambivalence in overruling an exclusion of tort liability to a non-contractual reliant party in the case of ABN AMRO discussed earlier. Read in its context, the wide disclaimer of liability to both purchaser and intermediary was ineffective because it was repugnant to the whole tenor of the agency’s conduct. The agency’s rating could only have value if it was relied upon for its professional skill; if due professional skill was excluded on terms, then the rating would be worthless. The analysis was as follows:99 Each Ratings Letter set out the rating assigned by S&P. Each contained a disclaimer … Again, a careful reader of the disclaimer will notice that each Ratings Letter identifies what it is not. It is not ‘investment, financial, or other advice’ and it went on to state that ‘you should not read and cannot rely upon the rating as such’ … The rating was not advice. It was an expert opinion as to the creditworthiness or the credit risk of the [ABN AMRO-issued] notes. The words set out … are not a disclaimer to the effect that S&P accepts no responsibility for the function or task it was engaged to perform and that is not surprising. A disclaimer in those terms would render the rating devoid of content or meaning and, as the primary judge accepted …, would have rendered the rating content-less, futile and self-defeating.

There were further reasons to knock out the disclaimer. Standard and Poor’s had clearly held out its opinion as formed by professionals exercising due skill and care; and had rather downplayed the disclaimer of liability in presentations to clients. Yet all along, the agency executives knew that the rating did not embody due reasonable skill and care or even accurate information, and therefore the publication of the rating to the purchasers was a misrepresentation of fact (that is, that Standard and Poor’s purported to act with professional skill) made with a degree of recklessness or even deceit, and so was not caught by the disclaimer. The legal result of this analysis was to deny that through a disclaimer a rating agency could push the risks of loss from a faulty rating onto a purchaser known to be reliant, especially if the rating was suspected to be unsound. It is not clear if the disclaimer in this case would have failed in the presence of ordinary inadvertent negligence without the aggravating gross or reckless elements. An alternative approach would be to hold that deliberate concealment of a known or suspected misrepresentation, where the effect of the misrepresentation is ongoing and the representor is aware or ought to be aware of the unsafeness of the statement, can bring a fresh head of liability into being, even if the original representation by itself would not have aroused liability, and even if there was no original intention to deceive. This head of liability—sustaining a representation discovered to be unsafe—is still being developed by the courts,100 and is distinct from older authorities exploring when a representor bears the burden of showing reasonable but mistaken belief at the time of utterance of a misstatement.101

99

ABN AMRO (n 59) [612]–[613]. With v O’Flanagan [1936] Ch 575 (CA), approved in Cramaso LLP v Viscount Reidhaven’s Trustees [2014] AC 1093 (UKSC), and followed in Karim v Wemyss [2016] EWCA Civ 27. See also Jones v Dumbrell [1981] VR 199 (SC); AIC Ltd v ITS Testing Services (UK) Ltd, The Kriti Palm [2006] EWCA Civ 1601; [2007] 2 CLC 223. 101 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574 (CA) (Bridge and Shaw LJJ, Denning MR diss). 100

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It thus appears that the common law does have resources to hold rating agencies to account for poor quality ratings that cause harm, using the normal tools of private law analysis. Carefully reasoned common law judgments, in the Australian and American judicial traditions, have made that position abundantly clear in the past few years. And the case law expounded here suggests that this approach is compatible with English common law, despite divergences in doctrinal tradition and a more conservative approach to commercial risk-shifting through application of tort doctrines.102

III. Re-regulation in the EU and UK—in whose interests? We may never discover if English common law can refine and develop liability in this area, for fresh doctrinal development has now been forestalled by legislation. In 2013, the European Union finalised a directive aiming to clarify and harmonise credit rating agency duties. But the United Kingdom’s instantiation of the directive could almost have been designed to throttle at birth any new developments of rating agency liability, whether emanating from legislative norms or common law jurisprudence. Whether this insulation from liability is a product of the public power of the rating agencies in influencing government is a question worth asking. It is certainly a result replete with irony—a subversive use of EU law to tame menacing local common law developments! The 2013 directive not only restates the duties of credit rating agencies, but places these agencies under the oversight of a new European Securities and Markets Authority.103 The regulatory controls are light and present little threat to profits. There is a requirement that sovereign debt ratings be issued at set calendar dates, and not in real-time reaction to political events. There is a ban on blatant conflicts of interest; for example, an agency cannot rate an entity that owns 5 per cent or more of that agency; but ‘issuer pays’ is left intact. All available ratings data (including fees charged) must be published on a ‘European Rating Platform’ to permit ready access and comparison. The meat of the new measures is the creation of a new civil claim where a rating agency ‘infringes intentionally or with gross negligence the Credit Rating Agency Regulation, thereby causing damage to an investor or an issuer’.104 One would have thought this added little to existing legal liabilities, as the rating agencies should already be liable for intentional (ie deceitful) practices. The addition of a gross negligence test would seem to require something more than normal negligence, but this needed to be re-crafted in the UK legislation, as English law conventionally has no tiers of negligence. In fact the UK version of this law manages to restate the liability rules for credit rating agencies so as to make any finding of liability short of deceit well nigh impossible.105 Intentional infringement is redefined as ‘deliberate’ infringement, a conscious decision to breach the law. Gross negligence is defined as ‘recklessness’, an advertent wish to ignore

102 Reasons to support a conservative position are adduced by J Stapleton, ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 LQR 249. 103 Credit Rating Agencies Regulation (CRA3), 462/2013. 104 European Commission, ‘Stricter rules for credit rating agencies to enter into force’, Brussels, 18 June 2013; for ESMA activity see www.esma.europa.eu/regulation/credit-rating-agencies. 105 Credit Rating Agencies (Civil Liability) Regulations 2013/1637, ss 3–16.

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standards of conduct, rather than a high degree of lack of care. A long list of factors making liability defeasible is then given. There must be reliance and causation of loss as under the normal local law of negligence. The court may limit liability to a third party, not only pursuant to a contract made between rating agency and issuer, but also via a communication to the investor disclaiming responsibility. A host of other factors are listed permitting the court further to cut back or eliminate liability, including: price points; issuer responsibility for poor initial data; absence of foresight of damage or lack of proximity between agency and investor; difficulty for the agency to insure or otherwise meet obligations to a large class of investor; mitigation opportunities or contributory negligence on the part of the investor; and any other reasonable factors that the court might see as shielding the agency from responsibility. In addition, a short one-year limitation period is applied to any claim. These regulations do nothing to afforce extant common law protection, but rather give a long list of reasons to limit or exclude the credit rating agencies’ liability. Commentators have predicted that the statutory action will likely be a dead letter.106 So far there are no reported civil claims under these laws. The graver point is that the statutory order may occupy the field to the exclusion of the common law. It is likely that the case of ABN AMRO and the New York and Californian cases cited earlier would have failed under this particular statutory regime. The new regulations cut back rating agency liability, but may also affect the rating agencies’ business model by re-valuing the legal potency of ratings in meeting prudential requirements. The EU rule in its UK instantiation requires financial institutions to make their own internal risk assessments and not rely entirely on external ratings; mitigation and contributory negligence are examples of local control devices used to cut back potential agency liability. This could turn out to be significant, since issuers and purchasers have in the past paid for ratings in order to replace their own risk assessment with that of the credit rating agencies. If the law now sheets risk for poor assessment back to the head parties, then responsibility for risk cannot be evaded by investment managers by pointing to their reliance on external ratings. In that case it will become unclear why it is valuable for the head parties to hire the rating agencies in the first place, since a major reason to use ratings is to reduce legal if not market risk. It would be a double irony if the UK legislature, in striving to bend or convert the EU law for rating agency liability into a law for rating agency immunity, ended up destroying the legal and economic basis of that very business.

106 G Risso, ‘Investor Protection in Credit Rating Agencies’ Non-contractual Liability: the Need for a Fully Harmonised Regime’ (2015) 40 European Law Review 706; A Wanambwa, ‘Civil Liability of Credit Rating Agencies’ (2014) 29 Journal of International Banking Law and Regulation 519.

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14 Apologies as ‘Canaries’—Tortious Liability in Negligence and Insurance in the Twenty-First Century PRUE VINES

I. Introduction For most of the twentieth century and into the twenty-first, tort law and insurance have been inextricably intertwined. This can be seen partly by looking at what injuries are commonly compensated in personal injury, which is the subject of this chapter. The kind of insurance considered in this chapter is liability insurance;1 that is, insurance taken out by a potential defendant which will pay damages if the insured is found liable. People are most commonly compensated for car accidents, work accidents, when professionals have injured them2 or in cases of product liability. It is not coincidental that these are also the areas in which insurance is most likely to exist,3 and in some cases, such as liability for professionals and car accidents, where it is compulsory.4 1 For a comprehensive account of liability insurance in the United States, see K Abraham, The Liability Century; Insurance and Tort Law from the Progressive Era to 9/11 (Cambridge MA, Harvard University Press, 2008). He likens the relationship between tort law and insurance to a binary star: ‘Neither star could remain where it is without the other’ (at 1) and that insurance is the principal way in which tort law spreads risk (at 2). For a different sort of account of the relationship between tort law and insurance see R Merkin and J Steele, Insurance and the Law of Obligations (Oxford, Oxford University Press, 2013). 2 See C Sappideen, P Vines and P Watson, Torts: Commentary and Materials, 11th edn (Sydney, Thomson Reuters, 2016) [1.25]. 3 T Baker ‘Insurance in Socio-Legal Research’ (2010) 6 Annual Review of Law and Social Science 433; R Lewis ‘Insurance and the Tort System’ (2005) 25 Legal Studies 85, 90. In common law countries it is relatively rare for ordinary people to have liability insurance, other than motor vehicle third party personal injury insurance; but in some civil law countries, such as Germany and the Netherlands, it is far more common. This does not seem to relate to litigiousness, however, as the Netherlands and Germany are at different ends of the litigiousness scale: E Blankenburg,‘Patterns of Legal Culture: the Netherlands Compared to Neighbouring Germany’ (1998) 46 The American Journal of Comparative Law 1, 3. We also need to distinguish between Legal Expenses Insurance (LEI) or BTE (Before the Event Insurance) and ATE (After the Event insurance). BTE provides cover for costs incurred by a claimant in bringing proceedings. There is evidence that without BTE insurance, many successful claimants would not have brought actions: Merkin and Steele (n 1) 386; R Lewis, ‘Litigation Costs and Before-the-Event Insurance: the Key to Access to Justice?’ (2011) 74 MLR 272. See also W van Boom, Juxtaposing BTE and ATE: The Role of the European Insurance Industry in Funding Civil Litigation, OUCLF, 26 March 2010: http://ouclf.iuscomp.org/articles/vanboom. shtml and P Stewart and A Stuhmcke, ‘Lacunae and Litigants: a Study of Negligence Cases in the High Court of Australia in the First Decade of the 21st Century and Beyond’ (2014) 38 Melbourne University Law Review 151. 4 Lawyers and medical practitioners are required to have liability insurance as a requirement for registration or accreditation. See, eg, Health Care Liability Act 2001 (NSW), s 19(3). In Australia a medical practitioner cannot be registered without evidence of insurance cover.

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The protection provided by insurance is a vitally important matter in relation to tort law in general and negligence in particular. It is important to distinguish the consideration of insurance within cases (that is, when a court is considering whether to impose liability) from consideration of insurance at a policy level, external to the question of liability in the case. Such external consideration includes government policy and legislation concerning the use and existence of liability insurance. In this chapter, I argue that, where insurance is compulsory, it is reasonable for courts to consider it in determining liability; but that where insurance is voluntary, it is not. However, both where it is voluntary and where it is compulsory, it is vitally important for insurance to be considered externally and regularly by legislatures, public bodies (such as the Australian Prudential Regulatory Authority), and law reform bodies for its impact on litigation and access to justice. In this chapter, I consider a very specific issue which arises where public liability insurance includes a compromise clause in its contractual arrangements. The issue is whether apologies constitute admissions which make that insurance void, by triggering the clause. This issue is significant because the common advice given by lawyers not to apologise after an accident is often triggered by the concern that an admission will have precisely this effect. While I argue for the protection of apologies, it must be emphasised that apologies should not be treated as creating a magic safety net around the apologiser—a person should not be held responsible in law if they are not legally liable. However, a person should not be held liable where the only evidence for liability is an apology he or she has made, and, in particular, an apology should not prevent a person from being able to argue his or her case in court. If insurance is voided at this stage, as seems often to happen, it may prevent a proper hearing of the issues. This is the kind of issue which external, socio-legal consideration of insurance should pick up and deal with. This chapter attempts to disentangle some of the confusion surrounding these issues, arguing that, as a matter of policy, apologies should be statutorily protected from being treated as admissions of liability such as would render void an insurance contract. It also suggests that the reason we should do this is systemic—a matter of access to justice—rather than internal to the question of liability.

II. The Relationship Between Tort Law and Insurance A. Background In considering the relationship between apologies, tort law and insurance, it is useful to consider first some more general issues relating to the relationship between tort law and insurance, in order to set out the background. Insurance can be considered within a case, as a factor which might affect liability, or it can be considered as a matter of the design of the legal system as a whole, socio-legally, externally to the individual case.

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B. Insurance Considered Within the Cases Seemingly paradoxically, in most cases, liability in tort (mostly negligence) continues to be determined as if insurance does not exist, even though the insurer is most often the mover of the action and, indeed, the one who pays—since both plaintiff and defendant are normally subrogated to insurers.5 For many years, tort law cases, and especially negligence cases, were decided while ostensibly ignoring the existence of insurance. Courts either expressly disapproved its relevance, or pretended to do so. So, to consider a selection of examples, in Davie v New Morton Board Mills Ltd6 Viscount Simonds said that a court of law should not ‘fasten on the fortuitous circumstances of insurance to impose a greater burden on the defendant than would otherwise be the case’. The same judge repeated that view in Lister v Romford Ice Storage Co Ltd.7 Lord Wilberforce in Morgans v Launchbury said that it was dangerous to alter the basis of liability on the basis of insurance arguments without knowing the impact on the insurance system.8 In Hunt v Severs,9 Lord Bridge took a similar view. Stephen J in Caltex Oil v The Dredge ‘Willemstadt’10 said: The task of the courts remains that of loss fixing rather than loss spreading and if this is to be altered [that is, by consideration of insurance in liability] it is, in my view, a matter for direct legislative action rather than for the courts. It should be undertaken, if at all, openly and after adequate public inquiry and parliamentary debate and not worked towards covertly, in the course of judicial decision, by the adoption of policy factors which assume its desirability as a goal and operate to further its attainment.

Justice Gummow in Vairy v Wyong Shire Council also thought consideration of insurance was impermissible for the purpose of determining liability in a negligence case.11 Similarly, where a pregnant mother’s negligent driving injured her foetus, the Supreme Court of Canada held that compulsory insurance should not be used to counter the policy view that a pregnant woman should not be held liable to her child, as that would be to determine liability on the basis of insurance alone.12 Indeed, when juries were used in civil cases, informing the jury that the defendant had insurance could see the jury discharged.13 Those who argue that the existence of insurance should not affect liability in a particular case generally argue that the existence of liability insurance may be prejudicial to the defendant, in that it may make it so much easier for the judge or jury to impose liability that it becomes unfair. Thus it may almost completely eliminate the fault requirement.14

5

Lewis (n 3); Merkin and Steele (n 1). Davie v New Morton Board Mills Ltd [1959] AC 604 (HL) 627. 7 Lister v Romford Ice Storage Co Ltd [1957] AC 555 (HL) 576. 8 Morgans v Launchbury [1973] AC 127 (HL) 137. 9 Hunt v Severs [1994] 2 AC 350 (HL) 361. 10 Caltex Oil v The Dredge ‘Willemstadt’ (1976) 136 CLR 529 (HCA) 581. 11 Vairy v Wyong Shire Council (2005) 223 CLR 422, [2005] HCA 62 [53]. 12 Dobson v Dobson [1999] 2 SCR 753 (SCC). 13 Lewis (n 3) 100; M Davies, ‘The End of the Affair: Duty of Care and Liability Insurance’ (1989) 9 Legal Studies 67, 81. See also M Duffy, ‘Disclosure by Defendants of their Insurance Details’ (2010) 18 Torts Law Journal 257. 14 A Smith, ‘The Miscegenetic Union of Liability Insurance and Tort Process in the Personal Injury Claims System’ (1969) 54 Cornell Law Review 645, 667. 6

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Underlying this argument is the assumption that, where a defendant has liability insurance, this may influence a judge or jury to impose liability where they otherwise would not do so. As Spigelman J has observed, judges may balk at bankrupting a defendant.15 Where insurance is an extra factor in the tort duty-and-breach matrix, it is likely to overbear other factors which have more legitimacy—the factors going to responsibility and fault. Furthermore, the court’s evidence and understanding of insurance may be incomplete and taking it into account may undermine some of the aims of tort law, such as corrective justice or deterrence.16 Recently there has been evidence of increasing acceptance by judges that insurance may, or should, be taken into account in determining liability. Martin Davies has argued that the ‘modern concept of duty was shaped by the introduction of virtually unlimited liability insurance in the late nineteenth century.’17 This is significant because of the dominance of negligence in the law of torts. In the United Kingdom, Canada, Australia and New Zealand, the duty of care has a very real role in defining the limits of the tort of negligence. Davies argues that the ‘sphere of risk’ approach to duty (which is more characteristic of United Kingdom and Australian law than of United States law)18 is particularly suited to a system based on liability insurance, because insurance is ‘all about risk’.19 In the United States, the duty of care seems to have a slightly lesser role, being stated often at a higher level of abstraction and the work often being done by breach of duty. Liability insurance is no less common in the US, so the argument that there is an inherent connection between duty and insurance seems less than convincing. However, there is evidence that insurance has had an impact on legal rules, particularly in relation to duty of care and breach of duty.20 Merkin and Steele agree with Davies’ view that insurance has had a significant impact on legal rules, arguing that it has been more of an influence than many have realised.21 Stapleton disagrees with the proposition that insurance alters the rules, but she concedes that judges may, and do, refer to it as a back-up policy factor; a ‘makeweight’. She does acknowledge that it may well affect the question of who sues, and that judges are aware of it in the background and may well have been influenced by it.22 Carver23 argues that it is time for the courts to take a more nuanced approach to the consideration of insurance in determining liability, and has shown that such an approach may be emerging. In Lynch v Lynch,24 a case with facts very similar to Dobson v Dobson, Clarke JA held that, at least where there was compulsory third party personal injury insurance, a child born alive was able to sue her mother for negligently caused injuries sustained while she was unborn. Cases which a cknowledge

15 Hon JJ Spigelman, ‘Negligence: the Last Outpost of the Welfare State’ (2002) 76 Australian Law Journal 432, 438. 16 J Stapleton ‘Tort, Insurance and Ideology’ (1995) 58 MLR 820. 17 Davies (n 13) 68. 18 J Goldman and B Zipursky, ‘The Restatement (Third) and the Place of Duty in Negligence Law’ (2001) 54 Vanderbilt Law Review 657. 19 Davies (n 13) 79. 20 Merkin and Steele (n 1); R Lewis, ‘Insurance and the Tort System’ (2005) 25 Legal Studies 85; J Morgan, ‘Tort, Insurance and Incoherence’ (2004) 67 MLR 384; Abraham (n 1); Davies (n 13); T Carver ‘Insurance and the Law of Negligence: an Influential or Irrelevant Persuader’ (2011) 22 Insurance Law Journal 51. 21 Merkin and Steele (n 1) [3.4.4]. 22 Stapleton (n 16) 827. 23 Carver (n 20). 24 Lynch v Lynch (1991) 25 NSWLR 411 (NSWCA).

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the importance of insurance include Morris v Ford Motor Co Ltd,25 Gwylliam v West Hertfordshire NHS Trust,26 and Vowles v Evans.27 The latter two cases go almost so far as to say that to hire an independent contractor who is uninsured is negligent.28 Lord Hoffmann took the view that insurance could be considered in Dimond v Lovell.29 In Imbree v McNeilly30 Kirby J thought insurance needed to be taken into account, but Gleeson CJ thought it irrelevant. Many of McHugh J’s judgments, including those in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg)31 and Perre v Apand Pty Ltd32 discuss insurance as a factor. Kirby J has frequently argued that insurance should be taken into account.33 Where judges have discussed insurance within the context of the duty of care, they have often considered it as a policy factor. Thus, in the United Kingdom, insurance has been considered as a factor in the context of asking whether it is ‘fair, just and reasonable’ to impose a duty of care.34 In Australia, if insurance is to be taken into account in establishing the duty of care, the most coherent way in which this could be done is by considering it as an aspect of the plaintiff ’s vulnerability, which is one of the major, ‘salient factors’ taken into account in Australia in determining the duty question.35 Insurance may affect vulnerability, in that the power of a plaintiff to protect himself or herself by insurance may be quite significant. In Perre v Apand the relevant insurance would have been against income loss. However, to assume that insurance against income loss, or indeed liability insurance, is an available choice for a plaintiff may not always be reasonable.36 Even if it is a matter of choice, should such a choice absolve the defendant of any duty to take care? As McHugh J said in Perre v Apand,37 Whether the plaintiff has purchased, or is able to purchase, insurance is, however, generally not relevant to the issue of vulnerability. In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, I pointed out that courts often wrongly assume that insurance is readily obtainable and that the increased cost of an extension of liability can be spread among customers by adding the cost of premiums to the costs of services or goods. In Caltex Stephen J rejected the contention

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Morris v Ford Motor Co Ltd [1973] QB 792 (CA). Gwylliam v West Hertfordshire NHS Trust [2002] EWCA Civ 1041, [2003] QB 443 [14]–[20] (Lord Woolf CJ). 27 Vowles v Evans [2002] EWHC 2612 (QB) 12 (Lord Phillips). 28 See also Smith v Eric S Bush [1990] 1 AC 831 (HL) 858 (Lord Griffiths). 29 Dimond v Lovell [2000] 2 All ER 897 (HL) 907. 30 Imbree v McNeilly (2008) 236 CLR 510 (HCA) [107], [112] (Kirby J), [14] (Gleeson CJ). 31 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241 (HCA). 32 Perre v Apand Pty Ltd (1999) 198 CLR 180 (HCA). 33 See, eg, Northern Sandblasting v Harris (1997) 188 CLR 313; Johnson v Johnson [1991] NSWCA 159 [6]; Pyrenees Shire Council v Day (1999) 198 CLR 180; [1998] HCA 3 [253]; Neindorf v Junkovic [2005] HCA 75, (2005) 222 ALR 631 [65]; Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 [83], [107]; McNeilly (n 30) [107]. He argued in McNeilly, at [112], that it was time to dispel the fiction created by not considering insurance, at least where insurance was compulsory, or universal. 34 See, eg, Vowles v Evans [2003] 1 WLR 1607. 35 Pyrenees (n 33); Re Pan Pharmaceuticals Ltd (in liq): Australian Natural Care Products Pty Ltd v McGrath [2006] FCA 1403, (2006) 237 ALR 389; and see n 39. 36 Every year when there is a disaster in Australia (flood, bushfire, cyclone etc), we are reminded that not everyone has house insurance. In Australia, public liability insurance is often, but not always, bundled with house insurance. So we cannot assume householders have public liability insurance. Does this mean insurance should be ignored or investigated in cases of occupiers’ liability? 37 Perre (n 32) 230 (McHugh J). 26

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that the existence of insurance or the more general concept of ‘loss spreading’ were valid considerations in determining whether a duty of care existed. I agree with his Honour. They do not assist but rather impede the relevant inquiry. Loss spreading is not synonymous with economic efficiency—which will sometimes be a relevant factor in determining duty. Australian courts, however, have not accepted that loss spreading is the guiding rationale for the law of negligence or that it should be.

This is a cogent argument for not considering insurance within the question of liability. It is even more cogent in relation to liability insurance if a plaintiff ’s capacity to insure becomes an issue. But the arguments against considering insurance within the liability question go beyond loss-spreading or loss-shifting. The tests for the duty of care, breach and causation are all normative tests. What we do not want to develop is a situation where, if the facts are all the same except for the fact that defendant B is insured while defendant D is not, insurance will make the difference, so that B is found liable and D is not. If that were the case, it would make a nonsense out of all the other normative factors considered. When Stapleton argues that insurance is an ‘illegitimate’ factor to be considered in respect of the duty of care (or indeed in breach),38 in my opinion she is right, but only where the insurance is not compulsory. The prevalence of liability insurance varies. This is one reason why the courts have often ignored it. Where insurance is voluntary, the court has three choices: to assume insurance, to universally ignore it, or to investigate whether it is either available in the marketplace at a reasonable price, or whether the plaintiff has it, in each and every case. The real danger is that assumptions may be made and not checked. Government departments may insure themselves, meaning that, if they have to pay damages, this impacts on their budgetary requirements. If this is the case, it is the very kind of thing that gives rise to arguments that their decisions should be non-justiciable, but we do not see it discussed in that way. Rather, the presence or absence of insurance is ignored, or it is commonly assumed that self-insurance is how governments and public authorities manage liability. As long ago as the 1960s, Lord Denning was saying that the courts were assuming insurance in tort cases.39 It may also not be possible for a person to insure, as was argued in the period before the civil liability legislation was brought on to the Australian scene.40 Premiums may be too high, or insurers may refuse to insure. When this is the case and insurance is considered in determining liability, there is a danger that issues relating to insurance may be considered in a piecemeal way, or that only limited evidence will be presented, while some matters are simply assumed. Because of the adversarial process and the fact that counsel are unlikely to raise the insurance issue themselves and argue it thoroughly, there is a significant risk that not all the information 38

Stapleton (n 16). Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363. 40 P Vines ‘Tort Reform, Insurance and Responsibility’ (2002) 25 University of New South Wales Law Journal 842; Trowbridge Consulting, Public Liability Insurance: Practical Proposals for Reform (2002), Report to the Insurance Issues Working Group of Heads of Treasuries, 30 May 2002; Australian Health Ministers Advisory Council Legal Process Reform Group, Responding to the Medical Indemnity Crisis: An Integrated Reform Package (2002), released on 18 September 2002; Australian Competition and Consumer Commission, Second Insurance Industry Market Pricing Review (2002) www.accc.gov.au/pubs/publications/industry/Insurance%20report_Sept2002.pdf; Senate Economics Committee, Parliament of Australia, Report on the Impact of Public Liability and Professional Indemnity Insurance Cost Increases (2002), released 22 October 2002. 39

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available will be considered. The fact that most cases scarcely mention liability insurance means that assumptions regarding insurance’s role are untested in the courts and it is difficult to know how insurance law does affect tort law. The variable extent to which parties hold liability insurance suggests that the better approach when determining liability is to ignore it, at least where it is not compulsory. Where liability insurance has been considered to be most relevant has been in the context of compulsory insurance. Thus, in Lynch v Lynch41 the existence of compulsory third party personal injury insurance was allowed to influence the finding of the existence of a duty of care. A similar situation applied in Imbree v McNeilly,42 in which Kirby J emphasised that compulsory insurance was at issue. In the context of compulsory insurance, there is less likelihood that considering it ‘would … lead to the development of a “distorting principle” the application of which might result in a different or unfair, answer being given in a personal injuries case where there was no compulsory insurance.’43 Where compulsory insurance does not exist, so that it may be the luck of the draw for the plaintiff whether the defendant is insured or not, allowing insurance to affect the court’s determination of liability is bringing impermissible elements into the matrix. Stephen J set out the opposing views:44 An opposing view, that loss should, in the case of involuntary torts, lie where it falls, there to be spread by recourse to the relatively efficient device of loss insurance (more efficient, for various reasons, than liability insurance) may have much to be said for it. Particularly is this so in areas in which insurance of one sort or another in fact becomes universal, whether or not as a result of governmental intervention. But there is, I think, no justification for the courts, when deciding actions in tort between private litigants, to make use of such views as policy determinants in the absence of any independent opportunity to test their soundness and without parliamentary sanction for the departure from pre-existing goals of the law of torts which their espousal involves.

Where insurance is compulsory, it is entirely proper that the court should pay attention to it. This would mean motor vehicle accidents, medical malpractice and other professional malpractice would be areas where the court can be sure that insurance exists and therefore that it will not alter the matrix of norms applying to one defendant as opposed to another. Where insurance is compulsory, it is reasonable to assume it and to assume that it is possible for the judiciary to know what the parameters of the insurance are. It is reasonable to assume this precisely because its compulsory nature means that the same situation applies to everybody. It is not reasonable to assume such things where insurance is not compulsory.45 It is quite true that the duty of care is assessed by including policy factors, but the existence of liability insurance is currently too patchy to make it fair to consider it when individuals are at the mercy of insurers to determine whether or not they are insured. If it is to be considered in each case, judges would have to consider how high the premiums were and how affordable; why one defendant is insured, and another is not.

41

Lynch (n 24). McNeilly (n 30). Carver (n 20) 8. 44 Caltex (n 10) 581. 45 This applies in the same way that the collateral source rule excludes insurance against accident or injury, which was taken out by the plaintiff, from benefiting the defendant: Bradburn v Great Western Railway Co (1874) LR 10 Ex 1; National Insurance Co of New Zealand v Espagne (1961) 105 CLR 569; Carver (n 20). 42 43

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C. External or System-Level Consideration of Insurance Although I have argued that insurance should not be considered as a factor in determining liability in tort, this does not mean that the socio-legal impact of insurance is not vitally important and that it should not be considered at an external, or systemic level. When Stapleton says ‘it is not inconsistent with the traditional view of the irrelevance of insurance to liability, to acknowledge the clear relevance of insurance to the operation of tort law in daily life’, she is referring to such analysis. This has given rise, in some cases, to no-fault schemes, such as that administered by the New Zealand Accident Compensation Commission.46 Consideration of the role of insurance varies from those who support it and see it as a vitally important matter sustaining the legal system, to those who see it as antithetical to the goals of tort law.47 The goals of tort law are frequently in conflict with each other and tort law rarely meets them all adequately. The goal of compensation is frequently defeated by the fault principle and, when it is not defeated, the compensation is rarely adequate.48 The goal of corrective justice is often regarded as the central goal of tort law, but if it is overemphasised, it is ‘worryingly restrictive’;49 and distributive justice, while not precisely a goal of tort law, needs to be considered too. The goal of deterrence is often seen as being in conflict with the presence of insurance, on the basis that insurance promotes the moral hazard of fraudulent claims, or that policy holders will be less careful.50 I will return to these issues later. We now have some substantial socio-legal considerations about how insurance interacts with tort law. This form of ‘external’ consideration is systemic, policy consideration rather than consideration of the issues within the case. It takes place in academic writing, in policy documents and in law reform documents. Although there are good reasons for insurance to continue to be ignored in assessing fault at the individual case level, it is vitally important

46 See, in Australia, works by Harold Luntz including ‘Reform of the Law of Negligence: Wrong Questions— Wrong Answers’ (2002) 25 University of New South Wales Law Journal 836; Woodhouse Committee, National Committee of Inquiry into Compensation and Rehabilitation in Australia 1974 (AGPS 1974); P Cane, Atiyah’s Accidents, Compensation and the Law, 8th edn (Cambridge, Cambridge University Press, 2013). The New Zealand legislation is now the Accident Compensation Act 2001 (NZ). 47 J Fleming, Jr, ‘Accident Liability Reconsidered: the Impact of Liability Insurance’ (1948) 57 Yale Law Journal 549; S Stoljar, ‘Accidents, Costs and Legal Responsibility’ (1973) 36 MLR 233; The Pearson Report: Royal Commission on Civil Liability and Compensation for Personal Injury (UK, 1978); G Schwartz, ‘The Ethics and the Economics of Tort Liability Insurance’ (1989–90) 75 Cornell Law Review 312; Merkin and Steele (n 1); Lewis (n 3); Morgan (n 20); Abraham (n 1). 48 See, eg, C Sappideen, P Vines and P Watson (n 2) ch 1; D Dewees, D Duff, and M Trebilcock, Exploring the Domain of Accident Law: Taking the Facts Seriously (New York, Oxford University Press, 1996); R Abel, ‘A Critique of Torts’ (1990) 37 University of California Los Angeles Law Review 785; H Luntz, Assessment of Damages for Personal Injury and Death, 3rd edn (Sydney, Butterworths, 1990) [1.1.11] (where he discusses surveys of quadriplegics in Australia); T Ison, The Forensic Lottery: A Critique of Tort Liability as a System of Personal Injury Compensation (London, Staples Publishing, 1967); NSW Law Reform Commission, Report on A Transport Accident Scheme for NSW (1984) LRC 43; P Atiyah, The Damages Lottery (Oxford, Hart Publishing, 1997); The Woodhouse Report: National Committee of Enquiry, Compensation and Rehabilitation in Australia (AGPS, 1974). 49 Morgan (n 20) 396. 50 C Parsons, ‘Moral Hazard in Liability Insurance’ (2003) 28(3) Geneva Papers on Risk and Insurance. Cf contra: O Ben-Shahar and K Logue, ‘Outsourcing Regulation: How Insurance Reduces Moral Hazard’ (2012) Chicago Institute for Law and Economics Working Paper No 593 (2D Series) 7 (arguing that insurers regulate the risky behaviour of their insureds).

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that, at the systemic level, insurance is considered and at times protected, for reasons of access to justice in particular. Before insurance became so common, a personal injury claim could be catastrophic for one side or the other. Insurance has changed the landscape of liability tremendously, even while the courts have pretended it is not there. The truth is that insurance is the decisive and most significant aspect of the tort liability system in its processes and functions, and often makes the difference between litigation, or no litigation; or compensation, or no compensation. Lewis has said that ‘Without insurance it is doubtful whether the tort system would survive at all.’51 In many cases, the whole process is run by insurance companies, and the named plaintiff and defendant have little or no control over the process at all. It is quite possible to track the relationship between liability in particular areas of law and the development of insurance—there is a close connection, and not always with insurance following, rather than leading, legal expansion.52 The close connection exists for the reason that certain areas of law are profitable for insurance companies to insure and that, at times, certain classes of defendant become aware that it is in their own interest to take out liability insurance. The differences between insurance and the tort law process seem more apparent than the similarities. Insurance is based on risk-assessment, carried out by statistical analysis of groups and populations. Premiums are calculated on the basis of the risk assessed to exist in relation to the individual as a member of a group. By contrast, tort law focuses (mostly) on the interaction between two individual parties, and in the common law systems (and indeed in the civil law systems as well) it actually allows the two parties to control the process, with the judge acting more like a ‘referee’, than an investigator. This focus on the individual parties means that the law deals quite badly with areas of law or fact which depend on the evaluation of evidence about populations—for example, epidemiological evidence for aetiology in medicine used for causation in personal injury cases.53 Although this difference between emphasis on populations or individuals is evident, it is also true that both insurance and tort law allocate risk and manage uncertainty.54 In recognising this, it is important that there is some relationship or congruence between the insurance and the tort law. As I have observed elsewhere55 it can be argued that there are direct conflicts between the aims of tort law and insurance. One area where this is often argued is in the way responsibility is considered. It is true that tort and insurance do this differently, but both tort and insurance operate to allocate responsibility, giving an outcome. It has often been argued that insurance is completely incongruent with tort law, in that it prevents the deterrent function of tort law from operating by preventing the damages flowing from the wrongdoer. That is, because the wrongdoer doesn’t pay the damages, the deterrent effect is lost.56

51 R Lewis, ‘How Important are Insurers in Compensating Claims for Personal Injury in the UK?’ (2006) 31(2) The Geneva Papers On Risk And Insurance 323. 52 Abraham (n 1) ch 6. 53 For example, epidemiological evidence about causation of asbestosis or cancer: see G Edmond and D Mercer ‘Rebels without a Cause?: Judges, Medical and Scientific Evidence and the Uses of Causation’ in I Freckelton and D Mendelson (eds), Causation in Law and Medicine (Aldershot, Ashgate, 2002). 54 Merkin and Steele (n 1) 38. 55 Vines (n 40). 56 See n 32.

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This suggests that insurance law, because it prevents the tortfeasor from paying damages, creates a situation where the deterrent effect is completely lost. However, this ignores two things. One is that any deterrent effect57 may also flow from the fact of being blamed and bad publicity associated with such blame. There is also the question of increased premiums, which may operate as a more effective deterrent simply because they reappear every year to remind the insured of the desired behaviour. A further view is that insurance law adds another dimension to tort law which is not inconsistent with its function. Abraham, for example, argues that insurance allows tort law to add a distributive justice function to its corrective justice function.58 Honore puts this slightly differently. He argues that corrective justice creates a ‘claim to put the matter right’. His view, with which I agree, is that the claim to put things right can sometimes be satisfied only by the harm-doer, as when an apology is claimed, but that, at other times, such as where the claim is for money, it can be satisfied by someone else, such as an insurer.59 Insurance may have another effect on negligence law that is rarely discussed. That is, it may remediate the disproportion that often exists between the wrong that has been done and the reparation that has to be made. Negligence differs from committing a crime in that it does not involve intention to harm and therefore may seem relatively blameless; but sometimes the damage caused by a moment’s inattention, in a motor vehicle for example, can cause catastrophic loss for which the defendant should pay. In that situation, insurance may actually equalise the level of proportionality between the wrongful act and the amount to be paid.60 This is so particularly where premiums are affected by the track record of the insured. All of this goes to show that insurance is vitally important to the tort system as it stands at present, and that problems with insurance are likely to either come from, or lead to, problems in the tort system. The arguments above (ie, that insurance equalises the level of proportionality between the wrongful act and the amount to be paid; that tort law does not necessarily affect deterrence; that insurance actually makes much of the tort possible) demonstrate the importance of the relationship between tort law and insurance. In particular, it seems clear that insurance makes the tort system workable in practice. In many jurisdictions, it is common for lawyers to advise clients not to apologise because they fear that such an apology will be treated as an admission of liability, which voids the insurance. In the next section, I argue that treating apologies as admissions of liability is wrong in law, but, more importantly, that treating apologies as admissions of liability which render insurance clauses void simply further punishes victims, and may remove the possibility of a proper determination of liability. The lack of insurance generally means the defendant is not sued because litigation is too expensive and unlikely to result in any

57

If there is any deterrent effect at all. See Schwartz (n 47). Abraham (n 1) 2, 229–32. 59 T Honore, Responsibility and Fault (Oxford, Hart Publishing, 1999) 73. 60 Although the evidence appears to be that the outcome affects the perception of moral blameworthiness a great deal: J Robbenolt, ‘Apologies and Settlement Levers’ (2006) 3 Journal of Empirical Legal Studies 333 and ‘Apologies and Legal Settlement: An Empirical Examination’(2003) 102 Michigan Law Review 460; M Bennett and D Earwaker, ‘Victims’ Responses to Apologies: The Effects of Offender Responsibility’ (1994) 134 Journal of Social Psychology 450. 58

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payment. This is a major policy reason for protecting apologies from amounting to admissions, and indeed for protecting insurance from being voided for that reason.

III. Insurance Contracts, Apologies and Admissions A. Defining Apologies for this Purpose For the purpose of this chapter, an apology is defined as a communication by speech or writing, which expresses regret or sympathy and acknowledges fault. The evidence is that most people do not regard a mere expression of regret (‘I’m sorry your father died’) as an apology. The bare minimum required by most people is the expression of regret and acknowledgement of fault.61 For our purposes, we need to distinguish several possible types of apology. I divide them into two major groups. First, there are apologies which are expressions of regret alone (eg ‘I’m so sorry you are hurt’). These I call ‘partial apologies’. Secondly, there are apologies which include an acknowledgement of fault, and these can be divided into two further groups (a) apologies which express regret and acknowledgement of fault but add no further facts (for example, ‘I’m sorry, it was my fault’ (‘full apologies’)) and (b) apologies which express regret and acknowledge fault and add further facts (‘I’m sorry, it was all my fault, I left the retractor inside the opening’ (Full apologies with further facts)). I will use this terminology in this chapter.

B. Compromise Clauses in Insurance Contracts The insurance contract regulates the relationship between the insured and the insurer with the insurer promising to meet the insured’s liability, subject to the contract. Insurance contracts are, in most cases, standard contracts in which the terms are given on a ‘take it or leave it’ basis. Freedom to come to mutual minds has nothing to do with it. The dominant issue is good faith. Commonly, insurance contracts include a clause providing that, if the insured acknowledges liability, or makes an admission, the contract will be void. Admissions and compromise clauses are common in insurance contracts all over the world. They are particularly

61 There is now quite a rich literature on the meaning of apology: N Tavuchis, Mea Culpa: a Sociology of Apology and Reconciliation (Stanford CA, Stanford University Press, 1991); A Lazare, On Apology (New York, Oxford University Press, 2004); N Smith, I was Wrong (Cambridge, Cambridge University Press, 2008). I have written about this in the past: P Vines, ‘Apologising for Personal Injury in Law: Failing to Take Account of Lessons from Psychology in Blameworthiness and Propensity to Sue’ (2014) Psychiatry, Psychology and Law DOI: 10.1080/13218719.2014.965295 1-11 and ‘The Power of Apology: Mercy, Forgiveness or Corrective Justice in the Civil Liability Arena’ (2007) 1 Journal of Public Space 1 (available at http://epress.lib.uts.edu.au/ojs/index.php/ publicspace/home).

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common in medical indemnity contracts, which is one of the reasons why apologies and disclosure are a big issue in medical law. Here is an example: 4.1 You must not make any admission, offer or promise in relation to any claim covered by this policy without our prior written consent.62

Lawyers in most jurisdictions are concerned that an apology may amount to an admission and therefore either directly, or indirectly, create liability and consequently breach the insurance clause, leaving the insured unprotected.63 There is reason to doubt this, because it is so rare for courts to regard apologies as admissions of liability, but, in Australia, generally, if the liability were to have existed regardless of the admission or compromise, the exclusion does not apply.64 The concern that an admission might also make an insurance contract void is real. To consider this issue we need to consider whether an apology is an admission.

C. Are Apologies Admissions? An admission is a statement that goes against the interest of the speaker. Admissions may be formal or informal. Formal admissions are binding. We are concerned here with informal admissions. The basic rule in civil liability is that where someone makes an informal admission which is against their interest, it can be received as proof of the truth of the contents, as an exception to the rule against hearsay, unless it is more prejudicial than probative. This is so unless the admission is explained away, or contradicted by the maker and then the tribunal of fact determines the weight to give the admission.65 Admissions may be admissions of fact, or admissions of liability. Whether an apology is an admission of liability is not absolutely clear. Here we need to revisit the distinction between partial and full apologies, and full apologies with further facts. Cases have gone either way, although the preponderance of evidence in all jurisdictions seems to be not to treat apologies—even full apologies—as admissions of liability. In the United States, a number of civil cases have rejected the idea that an apology is an admission of liability: Phinney v Vinson66 concerned an apology for the poor outcome of a medical procedure (a full apology with no further facts) and Senesac v Associates in Obstetrics and Gynecology67 concerned an apology for penetrating the uterus during an abortion.

62 United Medical Protection’s AMIL policy: Corrs Chambers Westgarth, Open Disclosure Project: Legal Review (2003) 30. 63 Terry v Trafalgar Insurance (1970) 1 Lloyd’s Rep 524 is the classic case where a motorist hit another motorist, apologised, and wrote and admitted liability. The admissions were held to have voided the insurance contract. The contract is breached whether or not there is prejudice to the insurer. 64 Broadlands Properties Ltd v Guardian Assurance Co Ltd (1984) 3 ANZ Ins Cas 60-552, 78,304 (Chilwell J). In Australia, the Insurance Contracts Act 1984 (Cth) prevents the termination of the contract, instead allowing the insurer to reduce the claim by the amount the insurer has been affected by the admission or compromise. Of course, this could be the whole sum in some circumstances. 65 Heane v Rogers (1829) 9 B & C 577, 586, 109 ER 215, 218; Voulis v Kozary (1975) 180 CLR 177, 193 (Jacobs J); Merick v Dickinson [1924] VLR 131; Aikman v Arnold (1934) 51 WN (NSW) 205; Smith v Smith [1957] 2 All ER 397. 66 Phinney v Vinson 605 A 2d 849 (Vt 1992). 67 Senesac v Associates in Obstetrics and Gynecology 449 A 2d 900 (Vt 1982).

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This apology was a statement by the doctor that she was sorry and that she had made a mistake and it had never happened before. Again, this apology was held not to be an admission of liability.68 This approach is consistent with the United Kingdom and Australian approach, in which the courts have generally taken the view that an apology, and even a statement like ‘I was wrong’, is not an admission of liability and cannot create liability because it refers to the person’s own perception of their behaviour, rather than a court’s determination.69 A statement against interest has been found not to be an admission of liability by the court in relation to the breach of the duty of care in several negligence cases.70 Similarly statements against interest have not been accepted as admissions establishing contravention of a range of other civil matters.71 The basic reason for this is that, when the person is making the admission, they are not a court and cannot establish liability.72 As Glass JA said in Grey v Australian Motorists & General Insurance Co Pty Ltd:73 By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness’ unfamiliarity with the standard governing his answer.

In Australia, it seems likely that an apology will not be treated as an admission of liability in negligence, even with further facts, although the further fact may be treated as an admission of fact. The case of Dovuro illustrates this.74 In that case, the defendants took out advertisements and wrote letters, which not only said sorry, but also said that the defendants had ‘breached our duty of care’. The court in that case said, again, that even statements of this type do not amount to admissions of liability. A partial apology—that is, an apology which does not include an acknowledgement of fault—can never be a problematic admission because it cannot be an admission against interest. It says nothing about the apologiser, except that they are sympathetic. This is not a problem. However, as we said before, most people do not regard such a statement as an apology. In order for it to be regarded as such, the bare minimum seems to be that, along with the expression of regret or sympathy, there must be an acknowledgement of fault.75 68 For federal matters in the US it is more difficult because the Federal Rules of Evidence r 408 provides that an apology made outside settlement negotiations may not be protected and may be admissible evidence; and the argument based on r 403, that the apology is more prejudicial than probative, has rarely been accepted: N Saith and S Hodge, Jr, ‘Physician Apologies’ (2011) The Practical Lawyer Nov 30 (SSRN abstract= 1966533). This is a significant problem. 69 Dovuro Pty Ltd v Wilkins (2003) 201 ALR 139. 70 ibid. See also Nominal Defendant v Gabriel [2007] NSWCA 52, (2007) 71 NSWLR 150; G v Armelin [2008] ACTSC 68, (2008) 219 FLR 359 [110]–[113]. 71 Regarding the Trade Practices Act 1975 (Cth), s 46, see: Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43, 68. Regarding misleading or deceptive conduct, see: Rhone-Polenc Agrichimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567 (affirmed (1986) 12 FCR 477, 487–8); Baxter v British Airways plc (1988) 82 ALR 298; Re Le Meilleur Pty Ltd [2011] NSWSC 1115, (2011) 256 FLR 240; Swick v Leroi [2015] WASCA 35 [156]–[158]. Regarding liability for trespass to land, or conversion, see: Hardie Finance Corporation Pty Ltd v Ahern [No 3] [2010] WASC 403. 72 According to Cross on Evidence, there is still a dispute about whether admissions may be made of mixed law and fact ‘The Place of Informal Admissions in Common Law’ (LexisNexis Online) [33420] (accessed 20 March 2016). 73 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669, 676. See also Hardie Finance Corporation Pty Ltd v Ahern [No 3] [2010] WASC 403 [168]–[169], [333]–[344]. 74 Dovuro (n 69). 75 See Vines, ‘Apologising for Personal Injury’ (n 61) and ‘The Power of Apology’ (n 61).

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In most jurisdictions, this seems unlikely to be regarded as an admission of liability, at least where the acknowledgement of fault is something like ‘it was all my fault’—that is, without the statement of any further facts beyond the general acknowledgement of fault. However, if the person says ‘I’m sorry, it was all my fault, I was looking in the wrong direction’, then we would have a full apology with a further fact, and this further fact might be an admission of fact that might, possibly, void an insurance contract.

D. If the Apology is an Admission, Will it Void an Insurance Contract? Terry v Trafalgar Insurance76 is the classic United Kingdom case, where a motorist hit another motorist, apologised, and wrote and admitted liability; and where it was held that these were admissions of liability which voided the insurance contract. The court regarded the contract as breached, whether or not there was prejudice to the insurer. It seems doubtful that this case will continue to be followed. However, in Australia, Broadlands Properties Ltd v Guardian Assurance Co Ltd77 held that the Insurance Contracts Act 1984 (Cth),78 s 54 applies: S54 Insurer may not refuse to pay claims in certain circumstances (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. (5) Where: (a) the act was necessary to protect the safety of a person or to preserve property; or (b) it was not reasonably possible for the insured or other person not to do the act; the insurer may not refuse to pay the claim by reason only of the act. (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject matter of the contract or of allowing the state or condition of that subject-matter to alter.

Section 54 prevents the termination of the contract, instead allowing the insurer to reduce the claim by the amount the insurer has been affected by the admission, or compromise.

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Terry v Trafalgar Insurance (1970) 1 Lloyds Rep 524. Broadlands Properties Ltd v Guardian Assurance Co Ltd (1984) 3 ANZ Ins Cas 60-552, 78,304 (Chilwell J). 78 This Act does not apply to workers compensation insurance, nor to compensation for personal injury or death caused by a motor vehicle accident: s 9. 77

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Of course, this could be the whole sum in some circumstances. The Act does not apply to workers’ compensation insurance, nor to death caused by a motor vehicle accident, so it would not relieve the problem in Terry’s case, but in other areas of personal injury it might alleviate the burden of treating an apology as an admission of liability. Naturally, if an apology is not an admission, it will not avoid the insurance contract, but because the status of the apology as an admission is still unclear, there is a very strong argument for apology-protecting legislation to make it so.

IV. Applying the Apology-Protecting Legislation—a Balancing Act As is well known, many common law countries, or their constitutive states or provinces, have now enacted legislation protecting apologies from being treated as admissions of liability or fault79 and from being admitted into court. Some have specifically protected them from voiding insurance contracts.80 The vast majority of instances of apology- protecting legislation protects a limited sphere of matters (often medical), and only protects partial apologies. However, a growing number of legislatures have begun to take heed of the psychological and other literature, and are passing legislation with wider scope, which protects apologies defined more broadly. The widest definitions of apology include those of British Columbia’s Apology Act 2006 and the Alberta Evidence Act 2000, both of which define an apology as: an expression of sympathy or regret, a statement that one is sorry or other words or actions indicating contrition or commiseration, whether or not the words or actions admit or imply an admission of fault in connection with the matter to which the words or actions relate.81

In New South Wales, an apology is defined as: an expression of sympathy or regret, or of a general sense of benevolence or compassion, in connection with any matter whether or not the apology admits or implies an admission of fault in connection with the matter.82

A narrower definition is that used in Western Australia, which provides that ‘apology’ means an expression of sorrow, regret or sympathy by a person that does not contain an

79 See, eg, Civil Liability Act 2002 (NSW), ss 69–71; Evidence Act 2000 (Alberta), s 26. For a comprehensive table setting out the scope and operation of legislation in Australia, US, Canada and England and Wales as at 2008, see P Vines, ‘Apologies and Civil Liability in the UK: a View from Elsewhere’ (2008) 12 Edinburgh Law Review 200. All Australian jurisdictions have apology legislation. Canadian apology legislation has been enacted in British Columbia (Apology Act 2006), Alberta (Evidence Act RSA 2000, s 26), Ontario (Apology Act 2009); Saskatchewan (Evidence Act 2006, s 23.1); Manitoba (Apology Act 2007); Nova Scotia (Apology Act 2008); Prince Edward Island (Health Services Act 1988, s 32); Newfoundland and Labrador (Apology Act 2009); Nunavut (Legal Treatment of Apologies Act 2010) and Northwest Territories (Apology Act 2013). 80 See, eg, Apology Act 2006 (British Columbia), s 2(c); Alberta Evidence Act RSA 2000, s 26(2)(c) (s 26 was inserted in 2008). 81 Apology Act 2006 (British Columbia), s 1; Alberta Evidence Act RSA 2000, s 26(1). 82 Civil Liability Act 2002 (NSW), s 68.

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‘acknowledgement of fault by that person’.83 This adds nothing to the common law, as it merely refers to expressions of regret, or partial apologies. Where there is an acknowledgement of fault, there is a real apology and a possibility that there is an admission. We have established that an apology will not create liability, even where there is a general acknowledgement of fault. But where the apology includes a statement of extra facts as well, things become more complicated. And they are most complicated in respect of compromise clauses in insurance contracts. This is because, depending on the definition of apology, it may be possible to sever the extra statements of fact from the statements of fault. If so, the extra statements of fact might constitute admissions of fact, which might, possibly, void the insurance. If courts can completely sever the words acknowledging fault, then there is no point in the legislation because an expression of regret doesn’t need protection anyway. On the other hand, if the apology can be extended to any words, however connected, this may create a situation where important evidence is excluded. In Robinson v Cragg,84 a case from Alberta, Canada, the plaintiffs made loans to a developer, which were secured by a mortgage against the land. The plaintiffs alleged that the defendant lawyers, in mistakenly filing discharges of security, created a substantial increase in prior encumbrances, which caused the plaintiffs to lose their entire investment. The defendants applied for a declaration that a letter written by the defendant was inadmissible as an apology. The plaintiff argued that there were statements in the letter that were not apologies. The letter read as follows: I have forwarded your correspondence of February 27, 2009 on to Mr Eden. It only came to my attention that we have mistakenly filed discharges of Mr Robinson’s security when I received an e-mail from Mr Jaeger in late February wishing to confirm the registration order of the Jaeger et al mortgage and Mr Robinson’s mortgage at Land Titles. I assure you that our registration of the discharges was through inadvertence and I apologize for doing so. As you are aware, Mr Robinson’s original security was registered in August of 2005 and June of 2006. The Jaeger et al security was registered in August of 2007. Clearly the Jaeger et al mortgage was behind Mr Robinson [sic] security and it was only through the inadvertence of my office that the situation has now changed. I sent the postponement of the Jaeger et al mortgage to Mr Eden in September of 2007 to be executed by Jaeger et al and returned to my office for registration. The document was never returned to us. I am preparing another postponement and forwarding same to Mr Jaeger with a request to sign and return. [Emphasis added by the judge.]

The Master ordered that words of apology that incorporated an admission of fault in the letter be redacted, but that other admissions of fact in the letter were not protected by the apology legislation of the jurisdiction. I think the proper approach is to sever extra admissions of fact from the initial statement of apology acknowledging fault. That is, I think that in Robinson v Cragg, the Master got the balance right in redacting the sentence beginning ‘I assure you…’, but wrongly allowed all the words of the second sentence ‘It only came to my attention…’ (except the word ‘mistakenly’) to remain. It seems to me that, in general, a sentence, or at the very least a clause, should be the smallest unit removed because of the

83 84

Civil Liability Act 2002 (WA), s 5AF. Robinson v Cragg (2011) 41 Alta L R (5th) 214.

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even greater risk of prejudice to the defendant if only one word is removed from a sentence. In Cormack v Chambers,85 the judge said: Clearly any evidence of an apology as defined is inadmissible. The question raised is whether an otherwise admissible relevant admission coupled to an apology is admissible. This requires a contextual analysis of the words used. The statements in question each convey separate and distinct thoughts or messages. There are statements of fact and statements of regret…. I am satisfied that the anticipated evidence contains separate sentences, with each sentence a separate thought.

In that case the relevant words were: A spoke with SP and ER. S told A that she was sorry and she could not forgive herself. She said that she always tells people not to swim behind the dock and has told her father not to go swimming there. Shannon regretted not telling [the Plaintiff].

The judge redacted the italicised words. I am doubtful about extending the protection to ‘any statement of fact’ for the purposes of liability unless it is made clear that it must have a link with the apology—that is, that the person included the statement as part of the apology. If it is inextricably intertwined with the apology, so that it is in the same clause of a sentence, I think that is a very clear link. I would like to see this made clearer because otherwise one runs the risk that, in a case like Robinson v Cragg, the entire letter would be excluded. The Master redacted the sentence and the admissions of fault, but retained the admissions of fact and held they were admissible because they were not combined with the apology.86 The critical issue here is how connected the apology words need to be with facts to make them inadmissible. Opinions differ on where the balance should be struck and the best way to ensure the intention that the words connect with the apology. In the absence of legislation, this will have to be resolved by judicial reasoning. Here is the apology canary. The apology issue is making us look at what should and should not be covered by a liability insurance policy and whether the internal question of liability should be dealt with the same way as the external question of whether the insurance cover should be void. In many ways, the apology’s effect on liability is a small issue. But it sends a signal in that insurance is what creates access to justice and it shows that, if the insurance is cut off, there may be no access to a determination of responsibility at all. Because the interaction between the plaintiff and defendant and the insurer’s determination of whether the insurance applies or not happens well before any court process, there is little or no opportunity to challenge the insurer’s decision. The gate to legal determination closes early. If the only object is to reduce litigation, this does not matter. But if the object is to have justice done, and it is clear that apologies including admissions of fault are often

85

Cormack v Chambers [2015] ONSC 5599 (CanLII). definition of apology in the Alberta Evidence Act 2000 includes (s 26) ‘an expression of sympathy or regret, a statement that one is sorry or other words or actions indicating contrition or commiseration, whether or not the words or actions admit or imply an admission of fault in connection with the matter to which the words or actions relate’ (italics added). The Act then provides that such an apology does ‘not constitute admission of fault … shall not be taken into account in any determination of fault or liability’ and prevents it from being admissible and from making void an insurance policy. 86 The

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made in complete ignorance of the rules of liability,87 allowing the insurer to end the insurance at that point precludes the proper administration of justice. It is important that evidence be admitted into court which is relevant to the corrective justice goal of tort law—personal responsibility established by fault—but it is also important that insurance not be removed from the picture precipitately, because allowing an apology to make an insurance contract void is likely to remove the possibility of establishing any level of responsibility at all. Legislatively protecting insurance from being made void by an apology, would effectively remove this particular barrier to access to justice. I am aware that the insurance industry would object to the removal of compromise clauses, despite the evidence that the benefits to it of the practice of liability insurance as a whole greatly outweigh the burdens. However, removing compromise clauses is unlikely to destroy the industry. In the Netherlands, apologies are protected by the Civil Code provision that there is to be no infringement of freedom of expression,88 and compromise clauses in insurance are regarded as such an infringement. The Netherlands insurance industry in relation to liability appears to be thriving. For common law countries, it seems to me that British Columbia has shown the way by providing for the protection of insurers in relation to their apologies under its Apology Act 2006: s 2 (1) An apology made by or on behalf of a person in connection with any matter … (c) does not, despite any wording to the contrary in any contract of insurance and despite any other enactment, void, impair or otherwise affect any insurance coverage that is available, or that would, but for the apology, be available, to the person in connection with that matter…

The motivation for the Apology Act (as for many others) was, ironically, to reduce litigation by protecting apologies. However, the importance of insurance for access to civil justice is implicitly recognised by this clause.

V. Bringing the Issues Together I have argued that we should distinguish between dealing with insurance at the individual, doctrinal and evidentiary level (within the case) and dealing with it at the systemic level. If we deal with this question at the systemic level, I suggest that a number of things become clear. First, it is vitally important to maintain liability insurance, if there is to be any hope of guaranteeing access to damages in the current system. Secondly, this form of insurance can be, and is in fact, congruent with personal injury tort law in a way which can alleviate our concerns that insurance cuts across the aims of tort law. There is little force in the argument that insurance ruins the deterrent effect of tort law, and similarly there is good evidence that adding distributive justice to the outcome yielded by corrective justice through insurance

87 And for a range of reasons including attempting to maintain social relationships: A Orenstein, ‘Apology Excepted: Incorporating a Feminist Analysis into Evidence Policy Where You Least Expect It’ (1998–1999) 28 Southwestern University Law Review 221, 250–51. 88 Dutch Civil Code: 2.1; 3.11; 3.12; 6.2.

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does not undercut that corrective justice outcome, but supports it by making the practical operation of the corrective justice system possible. Treating apologies as admissions of liability which void insurance clauses simply further punishes the victim. In most cases, it will simply remove the possibility of bringing an action in tort. Insurance is what makes litigation damages possible in the vast majority of cases. The lack of insurance generally means the defendant is not sued, because it is too expensive and unlikely to result in any payment. This is a major policy reason for protecting insurance and in particular, for protecting apologies from being treated as admissions of liability which void an insurance policy. Even though it is arguable that apologies do not fit into this category anyway, making this patently clear through legislation is likely to send the message to insurers in a way which is unmistakeable. Hitherto, this has not happened. Considering insurance at the systemic level will usually mean using legislation to deal with the issues. This has the advantage of drawing on the power of parliament to draw on information before passing legislation. Although, in the US, the Brandeis Brief exists, elsewhere it is very difficult for a court to be confident that it has all the information on a topic underlying the individual case at hand. It is in this way that the apology is operating like the canary in the coalmine. Just as the canary that collapses signals to the miners that there is something wrong, the apology (which could well be seen as a small issue in the scheme of things) is operating as a signal that we should look at the way in which tort law is operating. In the twentieth century, the process of tort law has become more and more inextricably intertwined with insurance. The fear that an apology might trigger liability has become a major driver of behaviour in areas which also happen to be areas where insurance is prevalent—medical practice/ professional liability and motor accident law being prominent examples. This is no coincidence. The fear of apology has been inculcated into medical practitioners and drivers, for example, by lawyers who fear the voiding of insurance because of compromise clauses, and who thus continue to advise clients not to apologise. This is extremely unfortunate because of the evidence that apologies actually tend to lessen the likelihood of suit89 and because of the importance of apologies in civil society.90 This chapter has tried to show that, although it is reasonable to consider insurance at the level of the individual case when the insurance is compulsory or universal, the relationship between tort law and insurance is better considered at the systemic level than at the level of the assessment of liability in court. Once we look at the systemic level, the vital importance of liability insurance in creating access to justice in the form of compensation becomes apparent. Having seen that, it becomes clear that allowing apologies to be treated either as admissions of fact, or admissions of liability, is problematic in that they might be treated as having voided an insurance contract. Apology-protecting legislation has been developed to help protect civil society. Ensuring that that legislation also protects apologies from making insurance contracts void is a very important part of that endeavour and of ensuring access to civil justice.

89 Robbenolt, ‘Apologies and Settlement Levers’ (n 61) and ‘Apologies and Legal Settlement’ (n 61); M Bennett and D Earwaker, ‘Victims’ Responses to Apologies: the Effects of Offender Responsibility and Offence Severity’ (1994) 134 Journal of Social Psychology 457. 90 Vines, ‘The Power of Apology’ (n 61). See also Tavuchis (n 61); Lazare (n 61); E Goffman, Relations in Public: Microstudies of the Public Order (New York, Basic Books, 1971); Smith (n 61).

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15 When Lump Sums Run Out: Disputes at the Borderlines of Tort Law, Injury Compensation and Social Security GENEVIEVE GRANT, KYLIE BURNS, ROSAMUND HARRINGTON, PRUE VINES, ELIZABETH KENDALL AND ANNICK MAUJEAN

The private law of tort aims to compensate injured plaintiffs for life, by placing them in the position they would have occupied, if they had remained uninjured (in so far as this can be achieved by the award of a monetary sum). In practice, however, lump sums often ‘run out’, or are prematurely dissipated. This problem can be particularly significant for the very seriously injured, who can be left destitute, with consequent impacts on their mental and physical health. Where plaintiffs’ funds have been dissipated, social security may play a key role in providing support. Despite the importance of understanding the interface of the tort and social security systems, there has to date been little empirical investigation of the reasons why lump sums are prematurely dissipated, or the experiences of tort plaintiffs who seek early access to social security after their receipt of lump sum damages. To prevent ‘double dipping’, a compensated tort plaintiff in Australian jurisdictions will typically be subject to a social security preclusion period. Where the plaintiff ’s lump sum compensation is dissipated before that period has ended, under the Social Security Act 1991 (Cth), the Department of Human Services and Centrelink may find there are ‘special circumstances’ in the case. A finding that special circumstances exist can result in the reduction, or waiver, of the preclusion period, thereby speeding up the plaintiff ’s access to social security. These assessments can be appealed, paving the way for disputes at the border of social security and injury compensation. Such disputes provide a rare window on the interface between these chief sources of financial support for people who sustain personal injury, and the reasons for dissipation of lump sum compensation. This c hapter presents our studies of special circumstances review decisions of the Commonwealth Administrative Appeals Tribunal (AAT). Through content analysis of these decisions, we shed light on the characteristics and experiences of claimants who argue for early access to social security after they have received damages. The analysis also highlights the reality of the way carefully calculated damages payments play out in practice, and the relevance of claimants’ post-settlement welfare and wellbeing for our assessment of tort law and injury compensation schemes.

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Tort is but one element of personal injury law, ‘the various legal regimes that together constitute society’s legal response to the problem of personal injuries.’1 Personal injury law is a patchwork fabric of common law, statute, schemes and programmes.2 At its most general, the Australian patchwork includes such diverse elements as Medicare; the National Disability Insurance Scheme; social security; private injury, income protection and health insurance; ad hoc programmes and ex gratia payments for specific individuals, or groups of injured persons; standing statutory compensation and lifetime care and support schemes (predominantly for transport accident and work-related conditions); and tortious common law damages claims. A range of criteria might be used to assess the performance of a system of compensation for personal injury. Many of the criteria we use to assess the performance of the civil justice system are suitable for this purpose, such as timeliness, fairness, consistency and predictability, accountability, accurate application of substantive law and the satisfaction of users.3 We could also consider the health impacts of claims processes,4 and whether injured persons are able to access the compensation to which they may be entitled.5 Additionally, we might be interested in the extent to which the benefits provided effectively support the rehabilitation and restoration of injured people and adequately address their losses.6 Scrutiny of the connections between the constitutive elements of injury law is an important, but less common means of assessing system performance.7 Interrogating the intersections and contradictions between these elements has untapped potential for shedding light on the effectiveness of our arrangements for compensating injury. In the Australian context, the relationship between tort damages and the social security system has been particularly neglected in this regard.8 When common law damages for personal injury are awarded in Australia, the compensation is typically awarded as a once-and-for-all lump sum payment.9 Although 1

P Cane, The Political Economy of Personal Injury Law (Brisbane, University of Queensland Press, 2007) 5. E Pryor, ‘Part of the Whole: Tort Law’s Compensatory Failures Through a Wider Lens’ (2008) 27 The Review of Litigation 307, 309–10. See also R Lewis, ‘Recovery of State Benefits from Tort Damages: Legislating for or Against the Welfare State’ in J Steele and TT Arvind (eds), Tort Law and the Legislature (Oxford, Hart Publishing, 2012) 285–301. 3 Victorian Law Reform Commission, Civil Justice Review: Report (Report No 14, 2008) ch 4. 4 See, eg, G Grant et al, ‘Relationship Between Stressfulness of Claiming for Injury Compensation and LongTerm Recovery: A Prospective Cohort Study’ (2014) 71 JAMA 446. 5 T Kirkham et al, ‘Surveillance of Mesothelioma and Workers’ Compensation in British Columbia, Canada’ (2011) 68 Occupational and Environmental Medicine 30; M Bismark et al, ‘Claiming Behaviour in a No-Fault System of Medical Injury: A Descriptive Analysis of Claimants and Non-Claimants’ (2006) 185 Medical Journal of Australia 203. 6 See, eg, S Seabury et al, ‘Using Linked Federal and State Data to Study the Adequacy of Workers’ Compensation Benefits’ (2014) 57 American Journal of Industrial Medicine 1165; E Tompa, ‘The Impact of Work Injury and Permanent Impairment on the Probability of Poverty’ (2014) 9 International Journal of Disability Management 22. 7 Exceptions include P O‘Leary et al, ‘Workplace Injuries and the Take–up of Social Security Disability Benefits’ (2012) 72 Social Security Bulletin 1; H Luntz, ‘Compensation Recovery and the National Disability Insurance Scheme’ (2013) 20 Torts Law Journal 153; R Lewis, Deducting Benefits from Damages for Personal Injury (Oxford, Oxford University Press, 2000) 115; Lewis (n 2). 8 The key exceptions include P Sutherland and A Anforth, Social Security and Family Assistance Law, 3rd edn (Sydney, Federation Press, 2013); I Freckelton, ‘Social Security Preclusions in Personal Injury Litigation’ (2005) 13 Journal of Law and Medicine 5; K Tranter and J Kelly, ‘Private Motor Vehicle Ownership in Australian Social Security Law’ (2014) 21 Journal of Social Security Law 32; K Tranter, ‘The Car as Avatar in Australian Social Security Decisions’ (2014) 27 International Journal for the Semiotics of Law—Revue Internationale de Sémiotique Juridique 713. 9 As the Productivity Commission has noted, although structured settlements are available, this option is rarely taken up, see Productivity Commission, Disability Care and Support (Report No 54, 2011) vol 2, 809–11. 2

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various components may make up a lump sum (such as general damages, past and future economic loss, and care, support and medical costs), claimants are free to spend their lump sum as they wish.10 It has long been suggested that recipients of lump sum compensation for personal injury may find their compensation payments to be inadequate and may prematurely run out of funds meant for lifetime care and support. The Productivity Commission’s 2011 Disability Care and Support report identified the risk of premature dissipation of lump sums as one of the failings of the current systems for personal injury compensation in Australia.11 When lump sums run out, injured claimants with significant disabilities can be left without income, without care and support, and even without a home. The considerable individual and societal consequences may include poor health outcomes and pressure on families, the non-profit sector, disability services, the public health system and the aged care sector. There is little contemporary empirical investigation of how lump sum recipients fare after they receive their lump sum settlement, and the manner in which they interact with the social security system. We have a poor understanding of how, when and why lump sums are dissipated.12 Our studies aim to shed some light on these issues. We investigate disputes at the boundaries of tort, injury compensation and social security through empirical analyses of review decisions about claimants’ access to social security following their receipt of lump sum damages. This chapter discusses two studies of injury compensation recipients’ appeals at the AAT relating to social security preclusion periods. Our studies show what is likely to be the ‘tip of the iceberg’ in terms of the problems experienced by many lump sum recipients. Section I discusses the interaction between social security and tort damages in Australia and describes how compensation recipients may be precluded from claiming income support through the social security system for many years. Section II describes our first study, investigating AAT decisions in which the Tribunal considered whether lump sum preclusion periods could be reduced, or waived, after receipt of common law damages for personal injury. It profiles the claimants and claims before the Tribunal, the duration of the preclusion periods to which they were subject and the outcomes of the review decisions. Section III considers the existing literature exploring why, and how, claimants may prematurely dissipate their lump sum settlements. Section IV discusses our second study of a sub-sample of the AAT preclusion appeals involving claimants who sustained very serious injuries in motor vehicle collisions.

10

Todorovic v Waller [1981] HCA 72, (1981) 150 CLR 402, [6] (Gibbs CJ and Wilson J). Productivity Commission (n 9) 807–09. 2012 green paper on the South Australian motor accident compensation scheme estimated that ‘about 25% to 30% of all accident victims spend the whole lump sum within two months of payment and 90% spend it all within five years’. See Department of Treasury (South Australia), South Australia’s Compulsory Third Party Insurance Scheme (Green Paper, 2012) 9. The paper does not cite a source for these statistics. There has been some investigation of the issue in a number of dated Australian studies. See, eg, M Neave and L Howell, Adequacy of Common Law Damages: Adelaide Law Review Research Paper No 5 (The University of Adelaide, Adelaide Law Review Association, 1992). In its 1984 report on transport accident compensation, the NSW Law Reform Commission found significant issues with claimant satisfaction with, and the adequacy of, lump sums. The research showed many claimants were dissatisfied and in a state of financial insecurity in the years following their receipt of lump sums: see NSW Law Reform Commission, Accident Compensation: A Transport Accidents Scheme for New South Wales (Report No 43, 1984) 94–95. There are some international studies, but their degree of generalisability to the Australian context is unclear: see, for example, J Babener ‘Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies’ (2009) 61 New York University Journal of Law and Business 127. 11

12 A

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This study investigates the reasons why lump sums run out. Finally, Section V makes some brief observations on responses to the problem of premature dissipation of lump sums in contemporary policy frameworks, including the National Disability Insurance Scheme (NDIS) and the National Injury Insurance Scheme (NIIS). Our chapter argues that there is good evidence that premature dissipation is a significant problem for recipients of lump sums, and ultimately to families, governments and society more broadly. There are multiple, complex and interacting legal, institutional and individual reasons why dissipation occurs. The current policy frameworks for the NDIS and NIIS do not appear likely to solve the problem of premature dissipation of lump sums, and may add an additional layer of difficulty for compensation recipients to overcome.

I. Tort Damages and Social Security in Australia The Social Security Act 1991 (Cth) (SSA) establishes the formal legal regime for dealing with the intersection between social security and lump sum payments for injury compensation, including damages.13 The SSA provides that ‘compensation affected payments’, including the disability support pension,14 are not payable during a lump sum preclusion period.15 ‘Lump sum’ is not defined in the Act, but ‘compensation’ includes damages and payments made under a state or territory insurance or compensation scheme, or in settlement of a claim, where such a payment is ‘made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury’.16 A lump sum preclusion period commences when periodic payments of the lump sum cease, when any such payments are redeemed, or (in the case where no periodic payments have been made), when loss of earnings, or earning capacity begins.17 The duration of the preclusion period is calculated by dividing the ‘compensation part of the lump sum’ by the ‘income cut-out amount’.18 Where a claim for damages has been settled, the law rebuttably presumes that the compensation part is 50 per cent of the lump sum19 (known as the ‘50 per cent rule’). Where a claim is determined by a court or tribunal, that decision will be adopted by the Secretary for the purposes of establishing the compensation part of the lump sum.20 The income cut-out amount is an indexed divisor in force at the time the compensation was received.21

13 For detailed commentary on these provisions, see the excellent overview provided by Sutherland and Anforth (n 8) 543–93. 14 SSA s 17(1). 15 SSA s 1169. 16 SSA s 17(2). 17 SSA s 1170(1)–(3). 18 SSA s 1170(4). 19 SSA s 17. 20 SSA s 17(3)(b). 21 SSA s 17(1), (8). As at 1 December 2015 the relevant amount was $954.90 per week (see www.humanservices. gov.au/customer/enablers/income-test-pensions#a7). This does not take into account factors such as the number of dependants that a claimant has and, accordingly, the income they may need, or changes in the income cut-out amount over the life of an individual. By contrast, these factors are taken into account in the calculation of general social security benefits.

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Under section 1184K of the SSA, the Secretary of the Department of Human Services (or their delegate at Centrelink) may decide to treat a compensation payment as not having been made, or as not liable to be made, if it is appropriate to do so in the ‘special circumstances of the case’. The effect of such a decision is to shorten, or negate, the preclusion period, thereby restoring the claimant’s entitlement to social security benefits.22 In their comprehensive analysis of the case law, Sutherland and Anforth identify a range of factors that have been considered in the review decisions concerning section 1184K special circumstances, including: —— the perceived unfairness of the operation of the compensation recovery provisions; —— the way in which the 50 per cent rule operates to cause disproportionate sums to be regarded as economic loss; —— the treatment of legal costs (where settlements are ‘costs inclusive’, the legal costs are typically factored into Centrelink’s assessment of the lump sum, resulting in a longer preclusion period); and —— factual circumstances commonly relied on by claimants seeking to make a case, such as inadequate advice by legal advisors or the Department; financial hardship; conduct and spending decisions related to the dissipation of the lump sum; ill health; and social, familial and cultural factors.23 Where the Secretary has determined not to exercise their special circumstances discretion, a claimant may seek an administrative review of the decision. This occurs initially through an internal departmental review, and if the claimant is dissatisfied with the result, further review may be sought at the AAT. Until 1 July 2015, such reviews were first dealt with by the Social Security Appeals Tribunal (SSAT). On that date, the SSAT merged with the AAT and there are now two levels of review through the AAT for applicants seeking review of Centrelink decisions: an initial review in the Social Services and Child Support Division, followed by a second review in the General Division of the AAT.

II. Study 1: Profiling Compensation Preclusion Appeals This study considered AAT decisions in which the Tribunal considered whether ‘special circumstances’ existed under section 1184K of the SSA in relation to a claimant who had been subjected to a lump sum preclusion period after receiving common law damages for personal injury. We searched the AustLII AAT database24 for decisions referring to SSA section 1184K made between 1 January 2004 and 31 December 2014 (11 years). Each of the 315 decisions identified through this search was reviewed. We excluded 67 of these decisions that were outside of the scope of our inquiry, for example, because they involved no-fault lump sums paid for permanent impairment, or claims by a spouse in relation to

22

Sutherland and Anforth (n 8) 554. ibid 554–93. 24 Australasian Legal Information Institute, Administrative Appeals Tribunal database, www.austlii.edu.au/au/ cases/cth/AATA. 23

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their partner’s receipt of compensation. Using content analysis techniques,25 the decisions were then coded independently by two researchers with a codebook and coding instrument developed, piloted and refined through analysis of 30 decisions before it was applied to the total sample. We generated descriptive statistics on variables of interest using STATA software.26

A. Study Cases Our study sample consisted of 248 AAT review decisions involving the consideration of special circumstances in connection with a claimant who had received common law damages for personal injury. Comparison with AAT reports of the annual numbers of lump sum preclusion applications lodged and finalised (based on financial years) indicates that a substantial number of reviews lodged in the study period were resolved by a formal decision of the Tribunal during 2004–14 (approximately 37 per cent)27 (Table 1). Table 1: AAT lump sum preclusion applications lodged, finalised and decided, 2004–14 Year

Preclusion lodgements (n)

Preclusion finalisations (n)

AAT decisions in sample (n)

2004

67

79

23

2005

48

50

23

2006

68

53

26

2007

61

64

27

2008

43

41

33

2009

64

70

25

2010

74

67

26

2011

61

74

15

2012

45

44

17

2013

65

59

17

2014

69

63

16

Total

665

664

248

The key characteristics of the claimants and their claims are presented in Table 2, below. The majority of preclusion review claimants were male (69 per cent), a finding probably connected with the fact that workers’ compensation claims were the substantive claim type in 61 per cent of the decisions, with motor accident compensation claims accounting for

25

M Hall and R Wright, ‘Systematic Content Analysis of Judicial Opinions’ (2008) 96 California Law Review 63. Statistical Software: Release 12 (StataCorp, College Station, 2011). 27 This proportion can only be approximate because of the possibility that some matters lodged in the study period were not resolved, and some matters resolved would have been lodged before the study period commenced. 26 StataCorp, Stata

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a further 30 per cent, and more men than women are injured at work and on the road.28 A small minority of claims involved public liability (6 per cent) or medical negligence actions (3 per cent).

B. Results: Claimants, Claims and Representation The majority of claimants who sought review of a special circumstances decision at the AAT had received damages in an amount between $100,000 and $499,000 (63 per cent), while nearly a quarter had received more than $500,000 (23 per cent). Awards ranged from $25,000 to $5.36m, and the median award was $299,120. Table 2: Characteristics of claimants and claims (n = 248) Claimant gender Male Female

172 (69%) 76 (31%)

Compensation claim type Workers’ compensation Motor accident compensation Public liability Medical negligence

145 (61%) 72 (30%) 13 (6%) 8 (3%)

Claim size (common law damages, $) Less than 100k

36 (15%)

100–249k

61 (26%)

250–499k

88 (37%)

500–749k

28 (12%)

750k–1m

10 (4%)

More than 1m

17 (7%)

Table 3 below shows that the vast majority of claimants were self-represented before the AAT or appeared with the assistance of a lay representative (77 per cent), with less than a quarter being legally represented (23 per cent). The Secretary was always represented, whether by an internal departmental advocate (90 per cent) or by an external lawyer (10 per cent). In one-third of cases (33 per cent), the Tribunal found that there were special circumstances.

28 See, for example, Australian Bureau of Statistics, Work-Related Injuries, Australia, July 2013 to June 2014 (cat no 6324.0) (Australian Bureau of Statistics, 2015) and G Henley and J Harrison, Trends in Serious Injury Due to Road Vehicle Traffic Crashes, Australia: 2001 to 2010 (cat no INJCAT 165) (Australian Institute for Health and Welfare, 2016).

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Table 3: Parties, representation and outcomes (n = 248) Applicant party Claimant

217 (88%)

Secretary

30 (12%)

Both

1 ( 9–12 mths

2.7%

10.5%

> 12–24 mths

11.8%

14.5%

> 2–5 yrs

38.9%

24.3%

> 5–10 yrs

28.5%

9.1%

> 10–20 yrs

7.7%

1.4%

> 20 yrs

3.6%

0.2%

< 6 mths > 6–9 mths

* Senate Community Affairs Legislation Committee, Supplementary Budget Estimates, 23–24 October 2014 Answer to Question on Notice (HS 166).

One-third of the broader body of preclusion decisions involved periods of 2–10 years (33.4 per cent), while two-thirds of the AAT decisions involved claimants who were precluded for that period (67.4 per cent). Finally, just 1.6 per cent of all persons precluded in 2013–14

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were subject to a preclusion period of 10 years or more, whereas 11.3 per cent of the AAT decisions involved such claimants.

C. A Partial Window on a Serious Problem The evidence provided by our first study is both illuminating and troubling. In considering the findings, is important to recognise the special status of the claimants represented in the AAT decisions. There may, for example, be many lump sum recipients who manage their compensation successfully, and who never require support from social security, much less before the end of their preclusion period. Amongst those who dissipate their compensation early, it may be that Centrelink receives and effectively processes decisions and reviews regarding special circumstances. Frustratingly, routine data about Centrelink’s management of these matters is not made available.29 It is reasonable to infer that claimants who take their grievance with Centrelink’s assessment all the way to tribunal determination are likely to be unusual. Despite these caveats, the insights provided by our first study are a valuable addition to the limited evidence base on the longer-term experiences of lump sum recipients and the interface between key elements of injury law. Research on the way community members respond to legal problems consistently suggests that many people do not take formal legal steps to respond,30 let alone engage with multiple levels of review and appeal. The claimants in our study, however, are people who have successfully sought common law damages; for two-thirds of them (68 per cent), the AAT decision came more than six years after their injury, suggesting that their engagement with the compensation process was sustained. Accordingly, they might be understood as persons with experience of compensation-related bureaucratic processes.31 That one-third of the claimants achieved success in having their preclusion period reduced or waived perhaps speaks to that capability; equally, however, it could be said to reflect failure by Centrelink decision-makers to adequately and accurately assess claimants’ circumstances. Troublingly, in view of the relatively good success rate claimants achieved, our findings raise the further question of whether there might be many more lump sum recipients who face special circumstances, but who fail to exercise their right to review. This might be, for example, because of their experience of being worn down by the frustrations of the compensation process.32 Recent evidence suggests that the most disadvantaged community 29 By a freedom of information request dated 1 May 2014, one of the authors sought access to statistical information on applications or requests for review of lump sum preclusion periods and decisions related to SSA s 1184K (special circumstances). The Department of Human Services responded that it declined to provide the data requested on the basis that ‘no discrete document that contains the information sought in your request exists’ and that ‘to produce a document containing data relevant to your request, the department would not be using a computer in a manner it is ordinarily available’ (letter from Department of Human Services to G Grant (2 June 2014)). In 2014, Centrelink reported that, in 2013–14 there were 692 compensation preclusion appeals dealt with by Centrelink Review Officers (internal review), 22% of which (151) were set aside or varied; at the SSAT level, 36% of decisions reviewed were set aside or varied (62 of 172) and among the 35 ‘customer appeals’ dealt with by the AAT, 66% (23) were set aside or varied, whether by consent or determination (Senate Community Affairs Legislation Committee, Supplementary Budget Estimates, 23–24 October 2014 Answer to Question on Notice (HS 166, 2). 30 See the comprehensive review of legal need surveys provided in C Coumarelos et al, Legal Australia-Wide Survey: Legal Need in Australia (Law and Justice Foundation of New South Wales, 2012) ch 1. 31 G Grant, ‘Claiming Justice in Injury Law’ (2015) 41 Monash University Law Review 618, 618. 32 ibid 632–46.

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members are more likely than others to take no action in response to legal problems.33 Lump sum recipients experiencing significant difficulty may therefore be suffering through preclusion periods in silence, without accessing the special circumstances mechanism. Research on claimants’ long-term post-claim welfare is clearly needed to better understand their experiences, and the broader performance of injury law and its elements. In the cases we reviewed, few compensation recipients were legally represented. Seventy per cent were self-represented, with a further 7 per cent assisted by a non-legal advocate. It is reasonable to assume that almost all of these claimants would have been legally represented for the purposes of their common law claim. There is a marked absence of plaintiff lawyers in the setting of the AAT decisions, where many relatively recent common law damages recipients are facing what is a last port of call for post-injury support. It is possible that the level of self-representation reflects claimant choice, but it seems more likely to be connected to an inability to pay in circumstances where the compensation has run out. Further inquiry is necessary to determine what degree of awareness exists in the legal profession about claimants’ experiences once common law claims are resolved and lawyers’ files are closed. Support and advice provided by legal practitioners, or referral to suitable services, could be a useful intervention to prevent poor outcomes for lump sum recipients. Most critically, the study findings suggest that many claimants dissipated their compensation relatively quickly after their common law claims were resolved. Two-thirds of claimants were the subject of the AAT decision within two years of the resolution of their common law claim, and eighty per cent of AAT decisions came within three years of the common law resolution. In the second study, we further explore the nature of early dissipation for claimants with very serious injury and large claims; clearly, this group of claimants faces substantial danger of poor outcomes if, very soon after injury, there are insufficient funds for their basic needs. In this respect, the comparison of the duration of the preclusion periods imposed by Centrelink in a single year (2013–14) with those reported by claimants in our study is instructive. Whereas only 11 per cent of the preclusion periods imposed by Centrelink were for periods of five years or more, 40 per cent of the claimants in our study were subject to preclusion periods of that duration. This evidence suggests that claimants with sizeable lump sums and preclusion periods are at risk of running out of compensation before the relevant preclusion period has run its course.

III. Why Do Lump Sums Run Out? Our review of AAT appeals against special circumstances decisions and preclusion periods reveal that a significant number of recipients of personal injury lump sum compensation dissipate it prematurely. This often occurs long before claimants’ preclusion periods expire. Lump sum inadequacy and premature dissipation of compensation were identified by the Australian Productivity Commission in 2011 as key problems with

33 H McDonald and Z Wei, How People Solve Legal Problems: Level of Disadvantage and Legal Capability (Justice Issues Paper 23, Law and Justice Foundation of New South Wales, 2016).

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f ault-based systems of compensation in Australia.34 Lump sum inadequacy (and the consequent impact on care and support for those with severe injuries) was one of the drivers for reforms such as the National Disability Insurance Scheme (NDIS) and the proposed National Injury Insurance Scheme (NIIS).35 Yet little is known about why and how people prematurely dissipate their compensation funds, and what proportion of lump sum recipients prematurely dissipate the funds. Much rhetoric in the area rests on anecdotal examples and views of successful claimants and their lawyers at the time of settlement. There is little focus on evidence about the actual experiences of claimants in the years following receipt of compensation. Lawyer interest groups point to issues inherent in the legal system and the ‘reformed’ law of torts, such as excessive discount rates, damages thresholds, damages capping and other legislative tort law reforms as primary reasons for early dissipation.36 They argue common law lump sum damages are the most appropriate and ‘just’ method to compensate injuries, in preference to administrative, no-fault schemes.37 Lump sums are said to provide claimants with choice, autonomy and self-determination in the management of compensation funds.38 Other factors which have been identified as contributing to early dissipation include early settlement, which tends to discount the overall lump sum; the reduction of lump sums to account for contributory negligence;39 the reduction of lump sums to account for ‘vicissitudes of life’;40 the reduction of lump sum pay-outs due to payment of legal fees and other expenses, such as medical costs; the necessity for a claimant to expend money in funds-management expenses;41 claimant behaviour, including gambling

34 Productivity Commission (n 9) 807–09. The issue of lump sum dissipation has also been identified in recent inquiries in relation to CTP motor vehicle schemes in QLD, NSW and SA. See the QLD Education, Tourism, Innovation and Small Business Committee, Inquiry into a Suitable Model For the Implementation of the National Injury Insurance Scheme (Report no 11, 55th Parliament, 2016), www.parliament.qld.gov.au/documents/committees/ ETISBC/2015/09NIIS2015/09-rpt-011–21March2016.pdf, 53–54; NSW Government State Insurance Regulatory Authority, On the Road to a Better CTP Scheme: Options for Reforming Green Slip Insurance in NSW (SIRA, 2016) www.sira.nsw.gov.au/__data/assets/pdf_file/0015/60252/CTP-Reform-options-paper-final.pdf, 14–15; Department of Treasury (SA) (n 12) 9. 35 It is somewhat of a misnomer to refer to a single NIIS as the proposed model is a federation of existing and new schemes, which cover a variety of very serious injuries. 36 Australian Lawyers Alliance, National Injury Insurance Scheme Workplace Accidents: Ensuring Sustainability and Consumer Choice, Submission to Department of Treasury, Consultation Regulation Impact Statement, NIIS— Workplace Accidents, 12 April 2015, www.lawyersalliance.com.au/documents/item/367, 16–17. 37 ibid 14–16. 38 ibid. 39 Some jurisdictions have additional, statutory contributory negligence provisions which particularly disadvantage claimants who have been intoxicated, have been injured through the behaviour of another individual who they knew or ought to have known to be intoxicated, have been involved in illegal activity at the time of the injury, or who were not wearing a seatbelt at the time of injury. See, eg, Civil Liability Act 2003 (Qld), ss 45–49. 40 See H Luntz et al, Torts: Cases and Commentary, 7th edn (Sydney, Lexis Nexis Butterworths, 2013) 521–23. This deduction is made from a lump sum to account for factors which may have potentially diminished the claimant’s need for damages, such as early death, or the possibility they may return to work earlier. Of course, there are many factors which could actually increase the claimant’s need for compensation, including living longer than predicted, increased medical costs due to deterioration in medical condition, increased costs of carers etc. 41 An allowance for funds-management can only be included in a lump sum payment where the injury results in a loss of cognitive ability, such that a plaintiff cannot manage his or her own funds. See Gray v Richards [2014] HCA 40, (2014) 253 CLR 660. For all other recipients, the costs of funds management and advice will result in an initial and ongoing deduction from the lump sum.

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and drug addiction;42 and lack of financial literacy and cognitive ability to manage large sums of money.43 In a submission to a recent Queensland Parliamentary Inquiry, John Walsh demonstrated the very significant effects of the standard 5 per cent statutory discount rate44 for lump sum settlements.45 He noted that an injured person who requires future support of $100,000 per year (which is entirely reasonable in relation to very serious injury)46 with a life expectancy of 40 years would require a lump sum of $4 million dollars (ignoring inflation, investment return, interest and taxation).47 The effect of the statutory discount rate would be to reduce the lump sum to around $1.8 million.48 Walsh notes that, after considering issues such as current investment rates, cost inflation and taxation, it is ‘highly unlikely’ that the money could be invested to provide $100,000 per year for more than 20–25 years. This would leave the hypothetical claimant without funds for care and support for some 20 years.49 A study carried out for the New South Wales Law Reform Commission report of 1984 on Accident Compensation identified issues that arise in relation to under-compensation. Sixteen of 17 cases reviewed for the study showed the future needs of claimants, which had been estimated at the time of settlement or judgment, proved inaccurate in the years following, due to factors such as underestimation of future medical costs, deterioration of health, inflation of the costs of care and services, and overestimated employment prospects.50 In addition, research carried out for the Commission found approximately one-third of recipients of lump sum compensation (including those who had received high awards) were reliant on social security benefits.51 For the range of reasons discussed above, the lump sum amount a claimant receives in settlement or judgment may simply not be enough to last the lifetime of the claimant and provide for future care and support needs. For example, in 2014–15 the average payment to claimants in the highest settlement category of motor vehicle injury in Queensland was $1.85 million.52 The lump sum a claimant actually received in hand would be likely to

42

Productivity Commission (n 9) 808. Perry and M Morris, ‘Who is in Control? The Role of Self-Perception, Knowledge and Income in Explaining Consumer Financial Behavior’ (2006) 39 Journal of Consumer Affairs 299. 44 The discount rate applicable in Australian jurisdictions ranges from 3%–7%, with 5% being the most common. See CCH Australia, Australian Torts Commentary (CCH, 2016) [14–500]. 45 Submission of John Walsh AM FIAA as part of Lifetime Care and Support Authority presentation to the QLD Education, Tourism, Innovation and Small Business Committee (n 34), www.parliament.qld.gov.au/documents/ committees/ETISBC/2015/09NIIS2015/09-TP-05Feb2016-2.pdf. 46 See, eg, the recent Parliamentary Inquiry report in relation to the adoption of the NIIS in Queensland (n 34) 32, which estimated the average costs of lifetime care and support per scheme participant in NSW, QLD, SA, VIC and WA as between $1 million and $4 million. In 2011, the Productivity Commission (n 9) 795 estimated the average lifetime care costs for claimants with high-level quadriplegia in the Victorian Transport Accident Commission scheme as $5.6 million. 47 See n 45. 48 ibid. See also Secretary, Department of Employment and Workplace Relations and Lloyd [2007] AATA 26, where a 29-year-old man rendered quadriplegic in a motor vehicle accident was awarded a total amount of $1.8 million in compensation. 49 For further discussion and examples of the potential impact of discount rates on lump sum settlements, see QLD Education, Tourism, Innovation and Small Business Committee (n 34) 54. 50 NSW Law Reform Commission (n 12) [3.47]–[3.58]. 51 ibid [3.59]–[3.60]. 52 Motor Accident Insurance Commission, Statistical Information 1 January to 30 June 2015, www.maic.qld.gov. au/forms-publications-stats/pdfs/MAIC-statistical-information-report-june-2015.pdf 14. 43 V

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be much less, due to the necessity to pay out-of-pocket legal fees,53 disbursements such as barrister fees, and refunds to Medicare and Centrelink out of the lump sum. As the calculations made by John Walsh discussed above show, such a reduced lump sum clearly could come nowhere near the lifetime care and support costs of a young very seriously injured claimant.54 Once other factors, such as additional legal fees and other demands on settlement such as housing were included, it could be expected that, even in the best of circumstances with a relatively well-managed lump sum, the rate of dissipation would occur more quickly than the 20–25-year period suggested by Walsh. As discussed in section II, the average time of dissipation we identified in our first study (ie the average time from common law resolution to AAT decision) was 2.9 years (SD 2.8 years, median 1.9 years, range 0.5–17.4 years). The way preclusion periods are calculated under social security legislation may also contribute to premature dissipation. For example, the application of the 50 per cent rule to calculate preclusion periods where the compensation is paid via a lump sum can result in significant overestimation of funds actually paid to the claimant for loss of income. The claimant may end up precluded from social security income support where settlement monies received for care, medical costs, legal costs, or necessary home alterations are treated as if they were income support.55 The operation of the rule can also result in a claimant being precluded from payment of the aged pension well after retirement age, even though they were only compensated on the basis of loss of income to the date of retirement.56 In addition, a claimant who is not compensated for any economic loss at all due to their inability to work at the time of, and following injury, may (in the absence of special circumstances) also be precluded from social security when 50 per cent of the settlement is treated as if it is economic loss.57 These situations can lead to premature dissipation of compensation funds, as claimants are forced to expend funds meant for other purposes on day-to-day living. Genn’s 1995 study for the UK Law Commission identified that, even where claimants experienced satisfaction at the time of settlement with the amount of their compensation, that satisfaction could quickly drain away over time when the reality of unexpected longterm effects and costs of an injury became apparent and ‘reduced capacity for work’ began to bite.58 The study found that most claimants were keen to preserve their compensation for the future, but they were not in ‘the best position to yield maximum returns from their 53 The recent QLD Parliamentary inquiry into the adoption of the NIIS (n 34) 53 noted that research from the QLD Motor Accident Insurance Commission indicated that up to 48% of claimant compensation can be paid in legal fees and statutory refunds. There is a statutory cap on legal fees payable from a lump sum in Queensland of 50% of the remainder of the lump sum after disbursements, see Legal Profession Act 2007 (Qld) ss 345–7. 54 See n 45. 55 Freckelton (n 8) 6–9. 56 See, eg, Keech and Secretary Department of Families Housing Community Services and Indigenous Affairs [2012] AATA 147, where the claimant claimed she received no specific component for future economic loss in her compensation settlement, but nevertheless was precluded from accessing the age pension when the 50% rule was applied to the total figure of her settlement. The tribunal found there was insufficient evidence that the lump sum did not include an amount for future economic loss, so as to disrupt the application of the 50% rule. 57 See discussion in Department of Family and Community Services and Guettler [1999] AATA 257. 58 Law Commission (UK), Personal Injury Compensation: How Much is Enough? A Study of the Compensation Experiences of Victims of Personal Injury (Report No 255, 1994), xx-xxi. There were similar findings in the two studies carried out for the NSW Law Reform Commission, (the ‘Lump Sum Survey’ and the ‘Traffic Accident Study’) (n 12) [3.51]–[3.58].

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damages’.59 The availability of financial advice was ‘patchy’ and accident victims often came to regret the financial choices they made.60

IV. Study 2: Reasons for Compensation Dissipation To investigate the factors that contribute to premature dissipation of lump sum compensation we conducted a further content analysis study of a sub-sample of the AAT preclusion appeals involving claimants who sustained very serious injuries in motor vehicle collisions. Very serious injury claims constitute the category of cases where early dissipation will have the most severe impact on claimants, due to their extensive lifetime care and support needs.61 In most cases, the compensation funds were self-managed. For the second study, we searched AustLII using key terms ‘preclusion period’ and ‘motor vehicle accident’. Cases which met the following criteria were included in the analysis: the claimant experienced a traumatic brain injury and/or spinal injury; the claimant’s injury was the result of a motor vehicle accident; the claimant appealed to the AAT for waiver or reduction of preclusion period; and the date of the AAT appeal was between 1989 and 2014. The initial search generated 228 cases. After excluding cases that did not meet the inclusion criteria, a total of 25 cases remained. Sixteen of the 25 cases provided a detailed breakdown of funds-expenditure and reasons for the early dissipation of lump sum payments. Other appeals included cases where funds-expenditure was unspecified, or where early dissipation was anticipated due to inadequate compensation to meet daily living expenses, or essential care and support needs over the duration of the preclusion period (eg cases involving compensation pay-outs with little or no economic loss component, significant discounts due to contributory negligence or high care costs). We generated descriptive statistics using the Social Statistical Program for Social Sciences (SPSS) to examine the average amount of lump sum payment, average time between compensation payment and AAT decision, and average time between the injury and receipt of lump sum payment. Using content analytic techniques, reasons for dissipation provided by claimants or their representatives were identified and extracted from each of the 16 cases and clustered into eight categories.

A. Sample Characteristics The majority of claimants in the sub-sample were male (19 of them) and they had been injured, on average, at 38.3 years of age (range 18 to 57 years of age). The average preclusion period was 11.8 years, but there was large variation (range.08 to 83.8 years). This is reflective of the relatively low settlements ($30,000 or less) received in some cases. The average time between settlement and appeal decision date (which would be later than dissipation 59 ibid. 60 ibid.

61 For example, the Productivity Commission (n 9) 795 estimated, in 2011, that the average lifetime care costs for claimants with high-level quadriplegia in the Victorian Transport Accident Commission are $5.6 million.

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date, given the time taken to lodge and process the appeal) was 3.6 years (range 1 to 12.4 years). This finding indicates rapid dissipation is occurring, particularly when the age and potential lifespan of claimants is considered. Although some payments were relatively small (in one case, $6,300), several were reasonably large (up to $3.75 million) and in one case the preclusion period imposed was 83.8 years. Dissipation of these payments within such a short timeframe after settlement is clearly problematic. Importantly, 48 per cent of the subsample appeals were unsuccessful, presumably leaving these individuals with no financial support. Another six participants were only partly successful, indicating that they may have received partial access to benefits or a reduction of the preclusion period.

B. Early Dissipation of Lump Sums: Diverse Explanations Our findings confirm that early dissipation of lump sum compensation settlements after very serious injury does occur, sometimes very quickly.62 In terms of the reasons for dissipation, our analysis showed that there was no single explanation (see Annexure 1). The problem is inherently a ‘wicked’ one, with typically complex and inter-dependent contributing factors.63 A range of factors contributed to the early dissipation of settlement funds in our study. The lump sum settlements received were comparatively low.64 Lump sum settlements were discounted by up to 65 per cent due to contributory negligence,65 leaving limited funds to meet the daily care and support needs of our sample over their lifetime. Similarly, repayment of debts, including medical and legal costs, government benefits received prior to settlement, and other expenses, reduced lump sums by up to 68 per cent.66 This is particularly problematic given the fact that, as discussed above, preclusion periods in Australia are typically calculated on the basis of the entire lump sum settlement, rather the amount actually received after deduction of debts.

(i) Self-management of Funds In 15 out of 17 cases where grounds of dissipation was specified, aspects of the self- management of settlement funds contributed to early dissipation. Although recklessness and failure to prudently manage finances played a role in some cases, one AAT Senior M ember highlighted that ‘for the vast majority of … recipients there is no court- administered investment training’, leaving individuals ill-equipped to manage large sums

62 In the cases we reviewed, the largest lump sum settlements received were $3.75 million (plus legal costs) (Hamilton and Secretary Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 282) and $1.8 million (Secretary Department of Employment and Workplace Relations and Lloyd [2007] AATA 26), resulting in preclusion periods of 83.8 and 40.7 years respectively. In both cases, claimants reported that settlement monies were depleted within five to 10 years. 63 See B Head, ‘Wicked Problems in Public Policy’ (2008) 3 Public Policy 101. 64 Settlements for claimants with quadriplegia ($165,750 to $1.8 million) were substantially lower than the average lifetime care costs of $5.6 million for high-level quadriplegia cited in the Australian Productivity Commission report (n 61). 65 See, eg, Welch and Secretary Department of Family and Community Services [2003] AATA 905. 66 Legal costs and medical costs represented almost 50% of one claimant’s settlement (Department of Family and Community Services and Guettler [1999] AATA 257).

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of money over a prolonged period of time.67 Share-trading losses, poor returns on property investments, unwise investment decisions, and failed business ventures all contributed to early funds dissipation where funds were self-managed.

(ii) Homes and Cars Compensation recipients in our study often spent a significant proportion of settlement funds on home, home necessities and vehicle purchases. These appeared to be largely prudent and reasonable investments. Security of appropriate, modified accommodation could be critical to long-term health outcomes for very seriously injured people. In addition, Tranter and Kelly found, in a previous study, that AAT applicants are generally not required to sell their home or a modest motor vehicle in order for preclusion periods to be waived.68 In our study, however, while some claimants were able to keep properties or vehicles, in other cases the AAT refused to amend the preclusion period. The likely outcome of these decisions was that the house or vehicle as an unencumbered asset would need to be sold to provide funds for care and support.69

(iii) Loans, Gifts, Debts and Addiction Unrecoverable loans and gifts to friends and family frequently contributed to early fundsdissipation, particularly for claimants with traumatic brain injury (11 of 16 cases). Early funds dissipation also occurred due to marital or de facto relationship breakdown, where a portion of the compensation pay-out was paid to the ex-spouse following separation.70 Gambling and drug and alcohol addictions frequently contributed to early dissipation of settlement funds (in 8 out of 16 cases). The prevalence of drug and alcohol addiction and high-risk behaviour in our sample was not surprising. Individuals with severe injuries may experience a wide range of physical and psychological health conditions and consequent depression,71 and may engage in high-risk behaviours such as smoking, alcohol misuse and over-use of psychotropic medications.72 There is also a connection between

67

O’Neill and Secretary Department of Education Employment and Workplace Relations [2009] AATA 619, [38]. Tranter and Kelly (n 8). 69 McCormick and Secretary Department of Families Housing Community Services and Indigenous Affairs [2013] AATA 36. See also Freckelton (n 8) 13, who notes that ownership of property can ‘militate against the exercise of discretion to reduce or eliminate a preclusion period’. This contrasts with general recipients of social security support who have not received compensation payments, who would not be ineligible to access social security benefits on the basis they had a residential home or private motor vehicle. 70 See, eg, Secretary Department of Social Security v Stephen Hickman [1996] AATA 262, where more than 50% of funds received in settlement were provided to the spouse on separation. 71 C Bombadier et al, ‘Symptoms of Major Depression in People with Spinal Cord Injury: Implications for Screening’ (2004) 85 Archives of Physical Medicine and Rehabilitation, 1749; E Deguise et al, ‘Long-Term Outcome After Severe Traumatic Brain Injury: The McGill Interdisciplinary Prospective Study’ (2008) 23 Journal of Head Trauma Rehabilitation 294; D Hoofien et al, ‘Traumatic Brain Injury (TBI) 10–20 Years Later: a Comprehensive Outcome Study of Psychiatric Symptomatology, Cognitive Abilities and Psychosocial Functioning’ (2001) 15 Brain Injury 189; L Groah et al, ‘Spinal Cord Injury and Aging: Challenges and Recommendations for Future Research’ (2012) 91 American Journal of Physical Medicine & Rehabilitation 80; M Labi, ‘Development of a Longitudinal Study of Complications and Functional Outcomes after Traumatic Brain Injury’ (2003) 17 Brain Injury 265. 72 L Hitzig, ‘Secondary Health Complications in an Aging Canadian Spinal Cord Injury Sample’ (2008) 87 American Journal of Physical Medicine & Rehabilitation 545; J Krause, R Carter and E Pickelsimer, ‘Behavioral Risk Factors of Mortality After Spinal Cord Injury’ (2009) 90 Archives of Physical Medicine and Rehabilitation 95. 68

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epression and gambling.73 It is clearly problematic, in those circumstances, for decisiond makers to treat issues such as drug addiction and other high-risk behaviours as reasons to deny an application for waiver of preclusion periods, on the basis they are autonomous acts of ‘bad behaviour’. Of significant concern was the high incidence of dissipation due to donations and debt repayments (13 cases) or loans and gifts to others (11 cases). In two cases, funds were stolen by a carer.

C. Individual and Societal Impacts of Early Dissipation Our second study demonstrated that a wide range of complex and interdependent factors contribute to early dissipation of lump sum settlements after very serious injury. The intrinsically ‘wicked’ nature of early dissipation and its individual and societal costs are well illustrated in Secretary Department of Employment and Workplace Relations and Lloyd.74 This case involved Mr Lloyd, a compensation recipient with quadriplegia including ‘no function in his lower limbs and only the most basic movement without strength in his upper limbs’. Mr Lloyd clearly could not survive without carer support for his most basic needs. He had, however, received a comparatively low settlement of $1.8 million, with a social security preclusion period of 41 years. By the time of his AAT appeal (approximately 12 years post-injury and nine years post-settlement) he had dissipated his entire settlement, had saleable assets valued at $2,100, and accrued debts of $96,000. Mr Lloyd identified several factors contributing to early dissipation of his settlement funds within the preclusion period. He asserted that less than a quarter ($400,000) of his lump sum settlement had been for economic loss, with the remainder reflecting general damages and $900,000 future care costs. However, operation of the 50 per cent rule meant that half of his settlement was treated as income. His lump sum settlement was subject to deduction of costs and debts, including $45,000 for legal costs, $40,000 in advance compensation payments, and a Centrelink repayment of $31,111.10 for the disability support pension he received in the years prior to the settlement of his claim. Within two months of settlement he purchased an accessible home for $260,000. He self-managed $900,000 worth of investments from three years post-settlement, when informed that these would only generate $35,000 per annum, rather than the $80,000 to $100,000 per annum that was required to fund his care. Having no experience or training in handling large sums of money, he subsequently sustained substantial share-trading losses. Mr Lloyd acknowledged spending money on girls for company and drinks for others at the pub, stating ‘I was very lonely and depressed at my condition and this was the only way I knew to have friends’. He had also continued his pre-injury gambling habit, but asserted that the money he had ‘knowingly spent on gambling, or girls, or drinks was very small compared with the money needed for my care and the losses I suffered on share investments’. He reported making some unwise loans to friends at the time of settlement; many of these were repaid but $75,000 in such loans was unrecoverable.

73 D Hodgins et al, ‘The Association Between Comorbidity and Outcome in Pathological Gambling: A Prospective Follow-up of Recent Quitters’ (2005) 21 (3) Journal of Gambling Studies 255. 74 Secretary Department of Employment and Workplace Relations and Lloyd [2007] AATA 26.

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By four years post-settlement Mr Lloyd realised he was running out of money and appealed to Centrelink for a waiver of his preclusion period. This appeal was unsuccessful, and he subsequently sold his home and other saleable assets to fund his income and daily care needs. He attempted suicide in response to a relationship breakdown when his remaining funds ran out. Without support from close friends or family, limited capacity for employment, and no capacity to pay his rent, there appeared to be few options available to him, other than a prolonged admission to a public hospital. Mr Lloyd’s case illustrates the significant consequences of early dissipation of lump sum settlements for individuals with very serious injuries. Indeed, the social worker involved in his case highlighted that, in addition to being homeless, Mr Lloyd would be at risk mentally as well as physically in the absence of a disability support pension. The case also highlights the significant societal costs of lump sum dissipation. Mr Lloyd spent many months in hospital at a cost of $1000 a day, while awaiting access to a disability support pension and care funding. This is clearly more costly than the $90,000 per annum required to fund his daily care in the community. Additionally, the state disability services department agreed to fund his ongoing care costs to enable his discharge from hospital, when funds awarded for future care had dissipated. While preclusion periods were instituted to help prevent double dipping into state and commonwealth funded services and supports, it is clearly not appropriate to deny access to these forms of support when an individual’s life depends on them.

V. Recent Reforms Through the Lens of Evidence on Dissipation While the options of periodical compensation and structured settlements have been introduced across Australia as a means to ameliorate premature dissipation,75 these appear not to have been widely taken up. The tax treatment of annuities to fund such payments, and the apparent lack of attractiveness of structured settlements to claimants and insurers are issues that need to be addressed further, to increase the attractiveness of periodical payments.76 The NDIS and NIIS are seen by some as possible remedies to the problems of early dissipation and the consequent impact this has on those with very serious injury and their long-term care. At least in the case of the NDIS however, claimants who accept lump sums and dissipate them may be precluded from participation, or, at the minimum, have their funding for lifetime care and support significantly curtailed.77 Far

75

Luntz et al (n 40) 494. the UK, periodical payment orders may now be court-ordered and are tied to inflation. See the discussion in R Lewis, ‘Compensation Culture Reviewed: Incentives to Claim and Damages Levels’ (2014) 4 Journal of Personal Injury Law 209. 77 National Disability Insurance Scheme (Supports for Participants—Accounting for Compensation) Rules 2013 (Cth); National Disability Insurance Scheme Operational Guideline—Compensation—Revise the Plan and Reduce Support—Compensation Received from a Judgement or Settlement; National Disability Insurance Scheme Operational Guideline—Compensation—Recovery of NDIS Amounts—Compensation Received by a Participant from a Judgment or Settlement. See also H Luntz, ‘Compensation Recovery and the National Disability Insurance Scheme’ (2013) 20 Torts Law Journal 153. 76 In

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from s implifying and solving the problem of premature dissipation, the NDIS appears simply to add a new level of complexity for claimants to navigate. The NIIS is still at an early stage and it is unclear whether the scheme will be introduced for injuries other than motor vehicle injuries and work injuries.78 If any of the relevant NIIS schemes, when operational, allow a fault-based lump sum option for lifetime care and support costs with subsequent preclusion from statutory support schemes, issues of premature dissipation may continue.79 In addition, where a claimant has obtained a lump sum prior to the commencement of the NIIS in their jurisdiction, Walsh notes that it is unlikely the claimant will receive a lump sum sufficient to ‘buy-in’ to the NIIS, where this is an available option.80 This is, as he notes, a ‘perverse outcome’ for a claimant who may seek the certainty of a lifetime care and support scheme, but has obtained insufficient funding from the common law action to exercise this ‘choice’. There is strong support from the legal profession for the continuation of lump sum payments for claimants, on the basis that lump sums promote corrective justice and, in the right circumstances, provide funding for adequate lifetime care and support. Proponents suggest that this approach best supports claimants’ autonomy and self-determination. Our studies indicate that there are many, complex, interrelating factors that explain why claimants may dissipate their compensation. The existing legal and institutional framework simply does not properly respond to those factors. While they are positive, changes such as ensuring trustee management for all claimants, compulsory financial planning advice, or court sanction of decisions to take a lump sum (as opposed to participate in a scheme)81 do not respond to many of the underlying issues we have identified as contributing to lump sum dissipation. Our findings suggest that, in order to understand whether the tort system is working to properly compensate those who are injured in Australia, it is necessary to examine its interaction with other systems such as the social security system and the NDIS and proposed NIIS. In addition, a longer-term view is required to assess whether lump sum compensation works well for an individual claimant beyond the point of settlement or judgment.

78 Queensland was the last state to announce it would join other states and territories in introducing a NIIS via a lifetime care and support scheme, by July 2016. National Injury Insurance Scheme (Queensland) Act 2016; Workers’ Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Act 2016. 79 The recently legislated Western Australian motor vehicle lifetime care and support scheme will only cover claimants unable to prove the fault of another driver, with fault claims to continue under the existing common law scheme and recipients of lump sum damages precluded from the lifetime care and support scheme. See Motor Vehicle (Catastrophic Injuries) Act 2016 (WA). In Queensland, the NIIS legislation (n 78) allows claimants who are not at fault, or are less than 25% contributorily negligent, to claim lump sum damages, with a five-year p reclusion period from the lifetime care and support statutory scheme. 80 Walsh (n 45). 81 QLD Education, Tourism, Innovation and Small Business Committee (n 34) 88.

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VI. Conclusion In this chapter, we have drawn on analysis of social security preclusion review decisions to demonstrate that premature lump sum dissipation is an individual, community, social and policy challenge in Australia. Although we do not yet understand the prevalence of the problem among compensation recipients, we have identified the problem as significant and areas of future inquiry required to better understand and address it. Importantly, when compensation runs out, claimants may also be unable to access social security for extended periods of time. This may leave people with a significant disability without adequate care and support, without financial support and in danger of homelessness. Our studies show that there is no simple, single reason for dissipation of lump sum compensation. There is an urgent need for further research on why, when and how personal injury claimants dissipate their compensation, and what happens years after claimants leave court, or deposit their settlement cheque. What may appear to claimants at the time of settlement or payment as just compensation that vindicates their legal rights, may quickly seem vastly inadequate within a year or two. Settlement decisions may be made for shortterm gain, for example the urgent payment of medical expenses, the purchase of appropriate modified accommodation, or to relieve the immense stress of interacting with the claim or litigation process. In the long term, these seemingly rational decisions may dissipate funds meant for long-term care and support. The physical, cognitive and psychological dimensions of injury may also negatively impact upon a claimant’s ability to properly manage and invest funds and render them susceptible to the influence of carers, family and friends. There are individual, legal and institutional factors that substantially contribute to early dissipation. Many of these factors are outside the control of claimants, who may be inherently vulnerable, particularly in the context of very serious injury claims. Closer attention to claimants’ longer-term experiences and the interface of social security and injury compensation is warranted to inform our evaluation of the performance of injury law in achieving its objectives.

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Part IV

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16 ‘I’ll Perform If and When You Do’: Non-Performance and the Suspension of Contractual Duties ANDREW TETTENBORN

I. Introduction Suppose you and I agree to cooperate in some project whose success requires active participation from both of us. If I find that you are not doing your bit, what can I do? One possibility is for me to withdraw from the exercise entirely. But this step, while possibly necessary in extremis, is drastic. It might well be entirely disproportionate to your failure; it means I will never get what you agreed to give me; and it will necessarily throw away all the potential advantages of the original collaboration. A more constructive course of action, at least for a non-lawyer, would be for me remind you that it takes two to tango, and then say that I am withholding my own contribution, not on a permanent basis, but unless and until you regularise your own position. But what does the law of contract have to say about this?

II. The Civil Law Approach: A Right of Suspension as of Course To a civil lawyer, this point raises no great issue of principle. Roman lawyers regarded it as obvious that an agreement to exchange performances was presumptively just that. It was of course possible to have a stipulation that one party was to give credit to the other, or otherwise perform without reference to the provision of the stipulated return. But such an agreement was exceptional. Where there was no such provision the rule was clear: unless and until he received counterperformance, or at least evidence of willingness and ability to provide it, a contracting party did not have to carry out his promise. If sued for failure

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to perform, he had the right to raise the specific dilatory defence of non-fulfilment, the exceptio non adimpleti contractus.1 Furthermore, this approach has survived into modern civil law. In Scots law, for e xample, it is clear that in the case of any mutual contract, performance can presumptively be halted by the innocent party for as long as the other contractor remains in default.2 As Lord Moncreiff put it in the leading decision in 1874, I understand the law of Scotland, in regard to mutual contracts, to be quite clear—1st, that the stipulations on either side are the counterparts and the consideration given for each other; 2d, that a failure to perform any material or substantial part of the contract on the part of one will prevent him from suing the other for performance; and, 3d, that where one party has refused or failed to perform his part of the contract in any material respect the other is entitled either to insist for implement, claiming damages for the breach, or to rescind the contract altogether …3

This right is independent of the right to terminate for breach,4 and either can exist without the other.5 Although the precise boundaries of the rule remain unclear,6 examples of its application are widespread. Without being in breach of contract, a seller can refuse to deliver instalments of goods7 or correct defects in realty8 until paid what he is owed; a debtor may decline to pay contractual interest as long as the creditor in breach of contract refuses tender of the principal;9 a tenant can suspend rent while landlord’s stipulated repairs remain undone;10 a principal is entitled to refuse commission to an agent for any period when the latter is in serious breach of the contract of agency;11 and an employer may refuse to pay workers for time not served.12 Conversely, an employee wrongly excluded

1 W Buckland and A McNair, Roman Law and Common Law, 2nd edn (Cambridge, Cambridge University Press, 1952) 230–31. The phrase exceptio non adimpleti contractus is admittedly post-Roman (R Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (Oxford, Clarendon Press, 1990) 801), but the idea was classical. 2 See Viscount Stair, Institutions of the Law of Scotland, 2nd edn (1693) I, x, 17 (‘neither party should obtain implement of the obligements to him, till he fulfil the obligement by him’); J Erskine, An Institute of the Law of Scotland (Edinburgh, Bell & Bradfute, 1828) vol II, Book III, para 86); also W McBryde, ‘Remedies for Breach of Contract’ (1996) 43 Edinburgh Law Review 43, 64 et seq. 3 Turnbull v M’Lean & Co (1874) 1 R 730, 738. See too W Gloag, The Law of Contract, 2nd edn (London, Green & Son, 1929) 592, 623, 626; Johnston v Robertson (1861) 23 D 646, 652 (Lord Benholme); Bank of East Asia Ltd v Scottish Enterprise [1996] CLC 351, 354 (Lord Jauncey) (an English case, but on a contract governed by Scots law); Macari v Celtic Football and Athletic Co Ltd 1999 SC 628, 639 (Lord Rodger). 4 ‘The principle of mutuality of contractual obligations is of fundamental importance to the remedies that are available to enforce a bilateral or multilateral contract. Two remedies are dependent on the principle: rescission and retention’: McNeill v Aberdeen City Council [2013] CSIH 102, 2014 SC 335 [23] (Lord Drummond Young) (italics mine). The same argument is implicit in the statement of Lord Moncreiff in Turnbull (n 3), where his second and third points are clearly and intentionally differentiated from each other. 5 Hence an employee’s short-term unauthorised absence allows the employer to withhold pay but not necessarily to dismiss (Laurie v British Steel Corp 1988 SLT 170); conversely, an employer’s breach of the duty of trust and confidence may justify an employee in resigning but not in refusing to obey specific orders while employed (Macari (n 3)). 6 Particularly troublesome is the question of how far a party’s right to withhold performance depends on the materiality or seriousness of the counterparty’s failure to perform: see McBryde (n 2) 65. 7 Turnbull (n 3). 8 Hayes v Robinson 1984 SLT 300. 9 Dunlop & Sons’ JF v Armstrong 1994 SLT 199. 10 Graham v Gordon (1843) 5 D 1207; Galloway (Earl) v M’Connell 1911 SC 846. 11 Graham v United Turkey Red Co 1922 SC 533. 12 Laurie (n 5).

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may be able to suspend his own obligations, for instance by refusing to honour a right of pre-emption over his employer’s shares.13 The claim to withhold is of course subject to limits. Being essentially security for counterperformance,14 it can relate only to stipulations outstanding at the time the defendant’s performance is due;15 furthermore, if the outstanding obligation is performed or its nonperformance made good by damages, the defendant’s right of withholding disappears.16 Further, the obligations must arise out of the same contract17 and be in some sense reciprocal to one another;18 the law, as Lord Rodger put it, ‘does not regard each and every obligation by one party as being necessarily and invariably the counterpart of every obligation by the other. One has to have regard to the circumstances.’19 Moreover, the right is regarded as equitable in the Scots sense; in other words, there is a clear jurisdiction in the courts to ‘ensure that it does not become an instrument of abuse’.20 As with Scotland, so with codified civilian systems.21 German law, for example, e mbodies a basic presumption of mutuality as a fundamental feature of its contract law.22 The matter is spelt out under § 320.1 of the Civil Code (BGB): a person with obligations under a synallagmatic contract ‘may withhold the performance due from him until counterperformance is forthcoming …’.23 Put shortly, this means that it allows precisely the kind of provisional suspension of performance discussed here, similarly distinguished from the right of cancellation, which is separately provided for.24 As in Scottish theory, the right of withholding is characterised as a means of preserving the contract by pressuring the other party to perform it;25 from which it follows that the right is extensively construed,26 so that 13

Hoult v Turpie 2004 SLT 308. primary function of retention is thus to provide interim security, and in my opinion its application should always be governed by this consideration’: McNeill (n 4) [29] (Lord Drummond Young). 15 Confirmed in Bank of East Asia (n 3). See too Macari (n 3) 650 (Lord Caplan). 16 Inveresk Plc v Tullis Russell Papermakers Ltd [2010] UKSC 19; 2010 SC (UKSC) 106 [76] (Lord Rodger). 17 Glen Clyde Whisky Ltd v Campbell Meyer & Co Ltd [2015] CSOH 97. But the question is fairly broadly viewed: see Inveresk (n 16). 18 Pegler v Northern Agricultural Implement & Foundry Co Ltd (1877) 4 R 435, 442 (Lord Shand); Forest v Scottish County Investment Co 1916 SC (HL) 28, 36 (Lord Parmoor). It is thus not the same as a right of set-off: Bank of East Asia (n 3) 358 (Lord Jauncey), Inveresk (n 16) [30] (Lord Hope). 19 Macari (n 3) 640 (on which, see J Thomson, ‘An Unsuitable Case for Suspension?’ (1999) 3 Edinburgh Law Review 394). 20 McNeill (n 4) [30] (Lord Drummond Young). 21 See generally ‘Right of Retention’ in J Basedow, K Hopt and R Zimmermann (eds), Max Planck Encyclopaedia of European Private Law (Oxford, Oxford University Press, 2012) Vol II, 1472–76. 22 See generally B Markesinis, H Unberath and A Johnston, The German Law of Contract: A Comparative Treatise 2nd edn (Oxford, Hart Publishing, 2006) Ch 8.2. 23 ‘Wer aus einem gegenseitigen Vertrag verpflichtet ist, kann die ihm obliegende Leistung bis zur Bewirkung der Gegenleistung verweigern’. The defence is known as the Einrede des nicht erfüllten Vertrags, a direct translation of the Roman exceptio non adimpleti contractus. 24 The Rücktrittsrecht, or right to withdraw definitively, is dealt with under BGB § 323. The different, and temporary, nature of the defence under § 320 is made explicit in its traditional description as a ‘postponing defence’ (aufschiebende Einrede). See too G Treitel, Remedies for Breach of Contract: A Comparative Account (Oxford, Clarendon Press, 1988) 310–11, describing civil-law-style suspension as ‘a dilatory plea which … entitles the injured party for the time being to refuse to perform his part’. 25 Münchener Kommentar zum BGB 7th edn (Munich, C H Beck, 2015) § 320, Rn 1 (‘It has a double purpose: to provide security for the claimant’s claim, and to exert pressure on the obligor to comply with his obligation as soon as possible’). 26 ibid Rn 8 (‘The extent to which counterperformance remains outstanding is immaterial. The law does not limit the right to refuse performance to an amount reflecting the proportion of the performance that has not been rendered.’). For an example of the case law supporting this see BGH 06.02.1958, VII ZR 39/57. 14 ‘The

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(for instance) there is no objection to the value of the performance withheld considerably exceeding that of the outstanding counter-performance.27 Although most reported cases in practice concern rights to withhold payment of money (for example, rent under a lease or payments under a building contract), the principle also allows, for instance, a worker to withdraw labour so long as insufficient care is taken of him,28 a seller by instalments to withhold deliveries until bills for previous consignments are settled,29 or a service provider to suspend service pending payment of arrears.30 Other code provisions extend this right to more specialised cases: for example, the unpaid owner under a time charter is afforded an explicit right to withdraw the ship until the position is regularised.31 Nevertheless, as in Scotland the right is not entirely unrestricted. It does not apply if it is clear that the obligations owed by claimant and defendant are in no sense given in exchange for one another;32 nor (since this is a temporary measure aimed at extracting performance from the other side) where the person invoking it has already withdrawn from the transaction.33 There is also what is essentially a ‘contrary intention’ exception where p erformance is to be made without reference to counterperformance.34 And account is taken of proportionality: after partial performance by a counterparty, the right to refuse performance may in any case be denied ‘where it would be contrary to good faith, in particular in the light of the relative insubstantiality of the performance remaining outstanding’.35

27 So the owner of a jerry-built shopping centre could keep back from the builder a substantial sum over and above a 10% security deposit he already held (BGH 09.07.1981, NJW 81, 2801); a buyer of land was allowed to hold back a very large proportion of the price until a right-of-way problem was sorted out by the seller (BGH 20.12.1996, V ZR 277/95); and a business tenant faced with his landlord’s failure to build a stipulated firewall could withhold rent amounting to several times the cost of remedying the problem (BGH 26.3.2003, XII ZR 167/01). 28 BAG 20.12.1963, I AZR 428/62. 29 BGH 15.02.1967, VIII ZR 223/64 (agreement for repeated deliveries of building materials); BGH 24. 10.2006, Az. X ZR 124/03 (contract for the treatment of serial batches of steel). 30 BGH 12.07. 2011, IV ZR 20/53 (mobile phone operator); LG Hamburg 17.09.1996, 404 0 135/96 (internet service provider). Here, however, there are limits, as will appear below. 31 See HGB (Commercial Code) § 568 (owner has right to ‘refuse to provide the performance due from him, including loading and the issue of bills of lading, for as long as the charterer is in default on charter hire which has fallen due’). This is interesting, as it is one of the precise cases where English law has denied any such right: see The Agios Giorgis [1976] 2 Lloyd’s Rep 192 (on which more below). 32 See, eg, BGH 13.12.2012, IX ZR 9/12 (rent and duty to keep deposit in trust account). The criterion is essentially whether the obligations concerned are ‘mutually bound one to another’ (wechselseitig miteinander verbunden)—BGH 19.5.2006, V ZR 40/05 at [29]. 33 See, eg, BGH, 25.01.1982 (lessee withdraws from commercial lease: no right to hold back rent for alleged defects); VIII ZR 310/80 and BGH 17. 7. 2013, VIII ZR 163/12 (same re buyer of heating equipment and claim for short delivery). 34 A party’s entitlement to withhold performance applies ‘unless he is bound to render prior performance’ (‘es sei denn, dass er vorzuleisten verpflichtet ist’): BGB § 320.1. An example is services, which are presumptively to be provided on credit, payment following only on completion: BGB § 641. 35 BGB § 320.2 (‘als die Verweigerung … insbesondere wegen verhältnismäßiger Geringfügigkeit des rückständigen Teils, gegen Treu und Glauben verstoßen würde’). Typical cases involve tenants withholding wildly disproportionate amounts of rent or service charges in respect of relatively piffling problems: eg, BGH 18.4.2007, XII ZR 139/05; BGH 6.5.2009, XII ZR 137/07.

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III. The Common Law and the Right of Suspension: The Traditional View What of Anglo-Australian common law in this connection? The accepted view is that there is no parallel. Whatever civil lawyers may think,36 at common law the right to refuse to perform on account of the other party’s non-performance is inextricably tied to termination for breach.37 The point was made many years ago, with characteristic bluntness, by Higgins J in the High Court of Australia: ‘A door’, he said, ‘must be either open or shut; a contract must either subsist or be at an end’.38 Not only is this apparent from standard textbooks, where in contrast to extensive coverage of termination for breach there is no chapter given over to any remedy short of termination: but this view has also been repeatedly39 accepted on the authorities, both explicitly40 and implicitly.41 True, in some ways this uncompromising view is mitigated: for example, because termination requires a clear election, and not every failure to perform to the letter by a contractor faced with a co-contractor’s non-performance is taken as a choice to terminate, an innocent party may keep some wiggle-room by taking his time over making a decision whether to terminate or not.42 True also that statute may provide for a suspensive remedy (for example, it does so in the UK for almost all non-domestic construction where payment is in arrear);43 and that parties can and do stipulate for it.44 36 For a rare case where a common lawyer drew this contrast, see Staughton LJ in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1992] QB 656, 667. 37 See J Carter, Breach of Contract, 2nd edn (Sydney, LexisNexis, 1992) 3.31 (common law ‘does not include a regime for suspension of the performance of a contract for breach’). 38 Bowes v Chaleyer (1923) 32 CLR 159, 190. 39 Though not absolutely universally. For rare scepticism, see Treitel (n 24) 20; A Apps, ‘The Right to Cure Defective Performance’ [1994] LMCLQ 525, 528. 40 Staughton LJ made the point succinctly in Channel Tunnel Group (n 36) 666–67: ‘It is well established that if one party is in serious breach, the other can treat the contract as altogether at an end; but there is not yet any established doctrine of English law that the other party may suspend performance, keeping the contract alive.’ See too Carter, Breach of Contract (n 37) 3–30; H Beale (ed), Chitty on Contracts, 31st edn (London, Sweet & Maxwell, 2012) 24-002; Bentsen v Taylor [1893] 2 QB 274, 279 (Bowen LJ); Lord Porter in The Petrofina [1949] AC 76, 91 (where contract repudiated, no ‘half-way house’ between accepting repudiation and terminating contract, and ignoring the repudiation and leaving all obligations on foot); Lord Ackner in Fercometal SàRL v Mediterranean Shipping Co SA [1989] AC 788, 805; Esso Petroleum Co Ltd v Niad Ltd unrep, 22 November 2001 [54]; NPower Direct Ltd v South of Scotland Power Ltd [2005] EWHC 2123 (Comm); (2005) 102(43) LSG 29 (Cresswell J); Holmes v Booth (1993) ANZ ConvR 491 (Tipping J). 41 Notably, Mersey Steel & Iron Co Ltd v Naylor Benzon & Co (1883-84) LR 9 App Cas 434, cited by Carter, above, as authority that a seller by instalments cannot make delivery of one instalment dependent on payment for the previous one. Whether this is necessarily correct is discussed below. See too Hanley v Pease & Partners Ltd [1915] 1 KB 698 (where workman guilty of serious misconduct, employers may affirm contract and claim damages, or dismiss, but may not suspend while keeping contract alive). 42 Chitty on Contracts (n 40) 24-002; Stocznia Gdanska SA v Latvian Shipping Co (No 2) [2002] 2 Lloyd’s Rep 436, [87] (Rix LJ). 43 Housing Grants, Construction and Regeneration Act 1996 (UK), s 112. This allows an unpaid constructor to suspend performance on seven days’ notice. Construction, moreover, is extensively defined, extending even to design services and painting and decoration: ss 104(2), 105(1)(f). Analogous provisions exist throughout Australia: see eg the Building and Construction Industry Payments Act 2004 (Qld), ss 19–20, and the Building and Construction Industry Security of Payment Act 1999 (NSW), ss 15–16. 44 Such agreements are fairly frequent, especially in the case of construction and shipbuilding contracts (for an example of the latter, see Art 39(c) of the standard BIMCO Newbuildcon contract). They also appear in the

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This aside, however, it is termination or nothing: there is, in Lord Ackner’s words in ercometal SàRL v Mediterranean Shipping Co SA,45 no ‘third choice, as a sort of via media, F to affirm the contract and yet be absolved from tendering further performance’. Admittedly this is a view more often stated in principle than applied in fact: but there are instances where it has directly mattered. One is a shipping case decided some 40 years ago, The Agios Giorgis.46 Time charterers in good faith, but wrongly, made deductions from an instalment of hire. Instead of terminating the charter (a step unequivocally allowed under the contract, but of no benefit whatever to anyone), the owners simply declined to unload any cargo for a couple of days until the matter was sorted out. Mocatta J upheld an arbitrator’s decision to award the charterers damages for two days’ delay: however reasonable the owners’ temporary refusal to provide the services required, absent specific provision there was simply no way it could be justified. A similar illustration in another context comes from New Zealand. In Canterbury Pipe Lines Ltd v Christchurch Drainage Board47 employers under a sewerage contract wrongfully withheld various progress payments: the contractor expressed every wish to go on with the contract, but said that it was stopping work pro tempore until paid what it was owed. Despite the obvious reasonableness of this approach, the court was having none of it. The unpaid contractor, said Cooke J, had ‘put itself in the wrong by suspending the work’,48 and hence the court would have upheld the authority’s right to dismiss the contractor for failing to progress the works.49 More recently, an instructive English case showed just how deep-seated the traditional view is, in that while the issue was squarely raised, no one even mentioned the possibility of suspension. In Your Response Ltd v Datateam Business Media Ltd,50 IT specialists agreed for a periodical fee to maintain a client’s customer database on their server: following a dispute, the client ceased to pay. To concentrate the customer’s mind, the suppliers shut off access to the database. The Court of Appeal, having held correctly that there could be no lien over intangibles,51 said that for that reason it did not matter whether the suppliers were right, and immediately gave damages against them. It never struck either it, or counsel arguing before it, that a supplier of services might have a contractual right to cease supplying them so long as he remained unpaid, while making it clear that normal service would be resumed on receipt of the necessary cheque.

service context, where providers regularly reserve the right to suspend service to customers in arrear while keeping the contract going (for an example see Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC Civ 63; [2006] 2 P & CR 9 [25]). Another example is time charters, which invariably have off-hire clauses in favour of charterers for periods during which they are deprived of the benefit of the ship, and which in some cases, such as BPTIME3, Cl.8.4 or SUPPLYTIME2005, Cl 12(f), have converse clauses allowing temporary withdrawal for nonpayment. The statement in Carter, Breach of Contract (n 37) 3.31, that force majeure clauses are the only common express provisions for suspension, must therefore be taken with a large pinch of salt. 45

Fercometal (n 40) 805. Agios Giorgis (n 31). See too The Aegnoussiotis [1977] 1 Lloyd’s Rep 268, where almost exactly the same thing happened, with the same result. 47 Canterbury Pipe Lines Ltd v Christchurch Drainage Board [1979] 2 NZLR 347. 48 ibid 356 (Cooke J). This case was decided before the enactment of the Contractual Remedies Act 1979 (NZ), but it seems that that Act would make no difference. Although it has a great deal to say about cancellation of contracts (see ss 7–9), it does not mention mere refusal to perform, which was in issue in the Canterbury case. 49 In fact the authority was in breach of contract for other reasons: but this does not affect the point in the text. 50 Your Response Ltd v Datateam Business Media Ltd [2014] EWCA Civ 281, [2015] QB 41. 51 Because of the impeccable House of Lords decision in OBG Ltd v Allan [2007] UKHL 21, [2008] AC 1. 46

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IV. The Common Law: The Problems with the Traditional Position The authorities referred to above may seem formidable. It is nevertheless submitted that the orthodox position as stated above is misleading. In parallel with the right to terminate for breach, English law, properly analysed, does give a contractor faced with breach or nonperformance52 a general right to refuse his own performance while nevertheless keeping the contract alive. The supposed tying of non-performance for breach to termination only arose because of a creeping historical misunderstanding; there is, if one looks for it, clear authority in favour of such a right; and the authority against it is either not binding or otherwise explicable.

A. Background: A History of Misunderstanding If we go back a couple of centuries or so, we notice a subtle change in the thinking of contract lawyers. Until about the 1840s, the situation was superficially the same as today, in that no one doubted that breach by the other party could in suitable cases justify refusal to perform. But a closer look reveals a significant point: namely, that the question of termination of the contract as a whole never came into the picture at all. This was not because such termination never happened: on the contrary, it frequently did. The real reason was that the issue did not matter. The language used was simply that of conditions precedent.53 If a defendant wanted to escape liability on the basis that the plaintiff himself was in breach, what he argued was that the plaintiff ’s proper performance had been a condition precedent to the enforceability against him of whatever obligation he was said to have broken. Whether that afforded a good defence would then be tried on demurrer, and that was normally the end of the case.54 The case law on the subject was voluminous, mostly harking back to antique dicta in Pordage v Cole55 and Boone v Eyre56 on the interdependency of obligations; overall it amounted to a confused and inconsistent mess.57 But there is no need to discuss

52 Most cases concerning the innocent party’s right to refuse performance involve a breach of contract by the other side, and for brevity reference will simply be made to breach. But it should be remembered that in the case of termination, justified non-performance is treated in the same way (eg Poussard v Speirs & Pond (1876) 1 QBD 410), and there is no reason to think matters are any different with any right to suspension. What appears below should therefore be read accordingly. 53 A matter frequently pointed out, normally with a view to showing that we now handle such matters better: eg, Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, 58 (Sellers LJ), 63 (Upjohn LJ), 69 (Diplock LJ); The Hansa Nord [1976] QB 44, 57–58 (Lord Denning MR); HKF Hurst v Bryk [2002] 1 AC 185, 193 (Lord Millett). 54 It has to be remembered that before the Common Law Procedure Act 1852 a person who demurred to a plea was deemed to admit the facts alleged in it. Thus if the plaintiff in such a case lost on demurrer he could not then allege, even if it was true, that he had not been in breach after all. 55 Pordage v Cole (1669) 1 Wms Saund 319. 56 Boone v Eyre (1779) 1 H Bl 273. 57 For those interested, the case law, and the confusion characterising it, are well traced in S Stoljar, ‘Dependent and Independent Promises—A Study in the History of Contract’ (1956–58) 2 Sydney Law Review 217 and in A Beck, ‘The Doctrine of Substantial Performance: Conditions and Conditions Precedent’ (1975) 38 MLR 413.

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this here. What matters is that all the talk was of the conditionality of the obligation sued on. The question of the status of the contract under which that obligation arose did not arise. In some cases the contract presumably survived. If, for example, a plaintiff failed to recover because he had not yet posted some vital security for performance,58 or because he had not yet delivered the goods for which he demanded payment,59 there was nothing to stop him later posting the security or tendering the goods, whereupon the defendant would be liable in the ordinary way. But other cases were different. If a pleaded breach was irremediable— for example, the permanent destruction of what the defendant had been promised,60 or (as was very common) late performance by the plaintiff in a case where time mattered61—a decision in favour of the defendant effectively killed the contract as a source of obligations, since there was no way the plaintiff could later put himself in a position to demand performance under it.62 But in neither case was the status of the contract relevant to the question of who won. And the same went, moreover, for the other side to the ‘condition precedent’ coin, the rule that where there was an entire contract for the provision of some service, then performance in full was a condition precedent to a claim for the price. The reason why a claimant who had not performed in full could not claim was simple: as Mansfield CJ put it in an early example of the common situation of building work left nearly, but not quite, complete, ‘the Plaintiff, not having performed the agreement he had proved, must be nonsuited’.63 Here too the denial of a claim to a plaintiff who had not performed in full was entirely consistent with the survival of the contract and his ability to claim were he later to perform as required; but the point was logically irrelevant. However, this logical and simple idea of the conditionality of obligations then quietly64 gave way to the idea of termination as the remedy for serious breach. Why? One factor was that in practice cases where non-performance was excused by breach were very often also cases where the contract was indeed dead and buried. As a result, judgment for the defendant, albeit based in reality on the simple non-fulfilment of a condition,65 increasingly came 58 As in Kingston v Preston (1773) 2 Doug 684. See too Goodisson v Nunn (1792) 4 TR 761, 765 (Buller J); also Roberts v Brett (1859) 6 CB (NS) 611, (1865) 11 HLC 337. 59 See, eg, Staunton v Wood (1851) 16 QB 638. 60 As in St Alban’s (Duke) v Shore (1789) 1 H Bl 270 (seller of estate disabled from suing buyer who refused to take conveyance, having cut and sold off a large proportion of the growing timber which ought to have gone with the land). 61 The obvious examples are early charterparty cases upholding the charterer’s right not to load on the basis that the vessel had sailed, or arrived, too late: eg Shadforth v Higgin (1813) 3 Camp 385 and Glaholm v Hays (1841) 2 M & G 257. See too Graves v Legg (1854) 9 Exch 709 (buyer’s duty to accept cargo dependent on prior nomination of ship carrying it: no nomination given before it was too late). 62 This was subject to a few exceptions: for example, failure timeously to deliver one instalment under a longterm instalment contract might justify failure to accept it, but leave intact the obligation to accept future ones. Compare Hoare v Rennie (1859) 5 H & N 19. 63 Ellis v Hamlen (1810) 3 Taunt 52, 53; also the earlier Cook v Jennings (1797) 7 TR 381, 384 (short carriage: shipowner’s claim for freight fails, since ‘it is necessary for the plaintiff to shew that he is entitled by the defendant’s covenant to that which he seeks’ (Grose J). See too Munro v Butt (1858) 8 E & B 738 (work done to be certified complete by surveyor: lack of certificate bars claim for price). 64 And as often as not imperceptibly. Compare Tony Weir’s reference, in another context, to the ‘characteristically sloppy English ellipse’ under which exoneration from liability to perform a promise within a contract mutated imperceptibly into the disappearance of the contract itself: J Weir, ‘Nec tamen consumebatur … Frustration and limitation clauses’ [1970] CLJ 189, 191. 65 And in the earlier cases so expressed: see, eg, Shadforth (n 61), Freeman v Taylor (1831) 8 Bing 124 and Ollive v Booker (1847) 1 Exch 416. See J Carter, ‘Discharge as the basis for termination for breach of contract’ (2012) 128 LQR 283, 287.

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coupled with a throwaway line stating, truthfully but irrelevantly, that the contract was at an end. Typical was the charterparty case of Glaholm v Hays66 in 1841. Shipowners agreed in a voyage charter to sail from England on a given date to pick up a cargo of grain on the Adriatic coast. The ship sailed nearly three weeks late: when she arrived the charterers refused to load. An action for breach of contract by the shipowners failed. Having said, correctly, that timeous departure was a condition precedent to the charterers’ duty to provide a cargo, Tindal CJ added, unnecessarily, that it was a ‘condition, upon the non-performance of which by the one party, the other is at liberty to abandon the contract, and consider it at an end’.67 And this phrase, or something like it, later made its way into mainstream usage.68 Secondly, there was the effect of the growth of the doctrine of repudiation, whose effect (where it applied) was to allow the innocent party to take the repudiator at his word and consider the contract abandoned.69 Logically this right, explicitly concerned with a right of a party to elect to abandon a contract which the counterparty indicated was unlikely to be fulfilled at all, has nothing to do with conditional obligations. Nevertheless, the two became conflated, thus giving rise to the present formulation under which words such as ‘repudiatory’ and ‘breach of condition’ are now used almost interchangeably.70 And thirdly, the cases on entire contracts, from being simple arguments as to whether the plaintiff had satisfied the conditions for payment, also came to be seen as turning on whether the claimant’s failure amounted to an breach of condition or abandonment of the contract allowing the other party to throw up the whole transaction.71

B. Counter-examples: Common Law Authority in Favour of Allowing Suspension of Performance So much for the history of confusion between the right to terminate a contract and the right merely to decline to perform one’s obligations under it. Turning from the past to the 66

Glaholm (n 61). 266. See too Cranston v Marshall (1850) 5 Exch 395 (passenger’s obligation to take up berth and pay passage on emigrant ship conditional on punctual departure: when delayed, Alderson B added (402) that passenger had the ‘option of rescinding’ the contract). 68 Hence Williams J’s formulation of a contractual condition as a ‘condition on the failure or non-performance of which the other party may, if he is so minded, repudiate the contract in toto, and so be relieved from performing his part of it’ (italics supplied) (Behn v Burness (1863) 3 B & S 751, 755, which in turn largely informed the reference in s 11 of the Sale of Goods Act 1893 (UK) to ‘a condition, the breach of which may give rise to a right to treat the contract as repudiated’. Another example of similar argument is Blackburn J’s dichotomy between a ‘condition precedent to the defendant’s liability’ and ‘an independent agreement, a breach of which will not justify a repudiation of the contract, but will only be a cause of action for a compensation in damages’ (Bettini v Gye (1876) 1 QBD 183, 187). 69 As a result of cases such as Withers v Reynolds (1831) 2 B & Ad 882 and Hochster v De la Tour (1853) 2 E & B 678: on which see Devlin J in Universal Cargo Carriers Corp’n v Citati [1957] 2 QB 401, 437. This is accepted even by John Carter, despite his overall view that even before a repudiation is accepted the innocent party is discharged from his duty to perform: see Carter (n 65) 283. 70 A nice example comes from Sellers LJ in Hongkong Fir (n 53) 57, referring to the possibility of regarding seaworthiness as ‘a condition of the contract the breach of which, in itself, was to be regarded as fundamental so as to entitle a charterer to accept it as a repudiation of the charterparty and to regard the charterparty as terminated.’ 71 Notably Dakin & Co Ltd v Lee [1916] 1 KB 566, 578–79 (Cozens-Hardy MR), and, importantly, Hoenig v Isaacs [1952] 2 All ER 176. There, Somervell LJ (178) explicitly invoked the Sale of Goods Act condition-warranty dichotomy; and Denning LJ at 180–81 similarly thought that the issue was whether the incompleteness went ‘to the root of the contract’. See, generally, Beck (n 57). 67 ibid

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present, however, this section suggests that today there are a surprising number of cases where Anglo-Australian contract law does recognise the latter right. Despite repeated statements that one cannot blow hot and cold so as to keep a contract alive while at least for the moment disowning one’s own obligations under it, if we look at the case law we find that it frequently has allowed a contractor to do precisely that. Unless these can all be dismissed as anomalies or exceptions, they must cast severe doubt on the traditional position. The first example is the entire contracts rule: that is, the rule already mentioned that ‘where there is a contract to do work for a lump sum, until the work is completed the price of it cannot be recovered’.72 Despite incautious use in the leading decisions in Dakin & Co Ltd v Lee73 and Hoenig v Isaacs74 of the language of termination for breach,75 it is suggested that this is not really a rule about termination at all.76 True, most clients faced with unfinished work cannot wait to escape a soured relationship.77 But they need not: they can equally opt to insist on full performance and pay nothing until they get it. This was essentially what happened in Eshelby v Federated European Bank Ltd.78 A builder sued for a stage payment. The defendant (the client’s surety) successfully resisted on the basis that the relevant work remained incomplete, even though, far from wanting to terminate, the client continued to insist on the work being finished.79 In other words, this was a classic case of a successful claim to suspension of performance. Indeed, a big advantage of the entire contracts rule itself is precisely the scope given to the recipient of services to keep the contract alive but decline to pay until the counterparty performs in full.80 Secondly, there is a clear instance from employment law, exemplified in the vital industrial action case of Miles v Wakefield MBC.81 Salaried employees in dispute with their employers refused to perform certain Saturday duties. The employers docked them a proportionate day’s pay. The employees sued for that pay, contending that since the employers had not terminated their contracts of employment, their only option had been to keep them alive and pay their wages, subject merely to a set-off of any proved loss (admittedly not shown, the employers being a public sector body). This argument was essentially the supposed ‘no suspension of performance’ rule in another guise; and Lord Oliver, delivering the leading opinion, decisively rejected it. Following earlier English decisions82 and (significantly) a

72 Sumpter v Hedges [1898] 1 QB 673, 674 (AL Smith LJ). This is exemplified in cases such as Eshelby v Federated European Bank Ltd [1932] 1 KB 423 and Bolton v Mahadeva [1972] 1 WLR 1009. 73 Dakin (n 71). 74 ibid. 75 See n 71 above. 76 Hence in Eshelby (n 72) 431 Greer LJ felt no little puzzlement about Dakin (n 71), where the parallel with termination for breach had been explicitly drawn. It is suggested that he was right to do so. 77 Quantum meruit cases such as Munro v Butt (n 63) and Sumpter v Hedges (n 72), where builders abandoned the work, are examples. 78 Eshelby (n 72). 79 He ‘refused to make any payment under clause 11 until the works were duly executed’: ibid 429. 80 As pertinently pointed out by the English Law Commission, Pecuniary Restitution on Breach of Contract (Working Paper No 65, 1975) para 18. 81 Miles v Wakefield MBC [1987] AC 539. See, more recently, Amey v Peter Symonds College [2013] EWHC 2788 (QB), [2014] IRLR 206. 82 Notably, Cresswell v Board of Inland Revenue [1984] ICR 508. See too Henthorn v Central Electricity Generating Board [1980] IRLR 361.

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suggestive Scottish case,83 he was clear that, entirely separately from any right to terminate an employment contract for breach, there was a separate rule that work and payment for that work were mutually dependent conditions. Even if the contract remained on foot, therefore, he saw ‘no ground upon which the employee who declines to perform that condition upon which payment depends can successfully sue for the remuneration which is dependent upon its performance.’84 Since then the logic of Wakefield has been applied so as to hold that (for instance) an employer may cease to pay an employee who refuses to work out his notice,85 or who makes it practically impossible for the employer to continue to employ him,86 or a self-employed agent in the same position,87 while nevertheless keeping the contract on foot. Thirdly, take the case of sales of goods, and the obligations of delivery and payment. These being presumptively mutually dependent,88 a seller may withhold performance to a buyer without money, and mutatis mutandis for the buyer faced with a seller without goods; but in both cases they may indubitably keep the contract alive.89 So too in more specialised sale cases. A FOB seller, for example, is excused the duty to load if the buyer produces an unsuitable ship;90 but the contract remains, so that if the buyer later comes up with a satisfactory vessel, the seller must load it.91 Again, a seller agreeing payment by letter of credit may cancel if the credit is opened late,92 but may equally well keep the contract alive and simply not perform until it is opened.93 Moreover, the same may well go for the buyer faced with a seller who in breach of contract94 delivers unsatisfactory goods. True, read au pied de

83 Laurie (n 5). The significance is, of course, that Scotland indubitably does recognise the right of suspension: see above. 84 Miles (n 81) 570. 85 Sunrise Brokers LLP v Rodgers [2014] EWHC 2633 (QB), [2014] IRLR 780 [60] (appeal dismissed, [2014] EWCA Civ 1373, [2015] ICR 272). The issue was the enforceability against the employee of a non-competition covenant. The parallel with the civil law is cleverly noted in D Cabrelli, ‘The Mutuality and Enforceability of the Employment Contract’ (2015) 19 Edinburgh Law Review 280. See too Australian National Airlines Commission v Robinson [1977] VR 87. 86 Standard Life Health Care Ltd v Gorman [2009] EWCA Civ 1292; [2010] IRLR 233 (another non-compete case). 87 Two of the defendants in Standard Life Health (ibid) had this status rather than that of employees. It made no difference. 88 By statute in England and Australia: eg, Sale of Goods Act 1979 (UK), s 28; Sale of Goods Act 1896 (Qld), s 30, Sale of Goods Act 1923 (NSW), s 31. The rule was the same at common law: Morton v Lamb (1797) 7 TR 125. 89 The point is well made, albeit in a different context, by Longmore LJ in Lomas & Ors v JFB Firth Rixson Inc [2012] EWCA Civ 419, [2012] 1 CLC 713 [34]. This is admitted to be an exception to the supposed ‘no suspension’ rule in Carter, Breach of Contract (n 37) 3–31. 90 Agricultores Federados Argentinos v Ampro SA [1965] 2 Lloyd’s Rep 157; The New Prosper [1991] 2 Lloyd’s Rep 93. 91 Agricultores Federados (n 90). 92 Trans Trust SpRL v Danubian Trading Co Ltd [1952] 2 QB 297. 93 Kronos Worldwide Ltd v Sempra Oil Trading SàRL [2004] EWCA Civ 3, [2004] 1 CLC 136 (fob seller’s liability to indemnify buyer for demurrage not triggered at all until credit opened). The older authorities on which this decision was based, such as Trans Trust SpRL (n 92), had stressed the seller’s right of termination: the silent transition to a right of suspension seems to have gone unnoticed by anyone. 94 It might be argued (see P Devlin, ‘The Treatment of Breach of Contract’ [1966] CLJ 192, 194) that delivery of unsatisfactory goods is not a breach, but merely a request to the buyer to accept a substitute. But this is unsatisfactory, since it would mean that if the bad goods caused damage to the buyer before he could decide to reject them he would have no claim. This does not seem to be the case: cf Albright & Wilson UK Ltd v Biachem Ltd [2002] UKHL 37, [2003] 1 CLC 637.

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la lettre, the Sale of Goods Act suggests that if the buyer refuses delivery he terminates the contract.95 However, what authority there is denies this and suggests that if the seller can still deliver proper goods and has not refused outright to do so, the buyer may (or possibly even must) keep the contract alive so as to allow him to do so.96 Fourthly, there are numerous other miscellaneous cases where, with good reason, obligations have been regarded as concurrent conditions one of another quite independently of any right to terminate. One, indeed, arises out of the HongKong Fir case97 itself. Although this case limited the power to terminate a charter for unseaworthiness to really serious cases, Salmon J and two appeal judges thought that any unseaworthiness, apart perhaps from the very trivial, would justify the charterer in refusing to accept or load the vessel until it was rectified.98 Other instances where, quite separately from any right to terminate, a party has been held entitled to withhold his own performance pending counterperformance have included payment of freight and delivery of goods,99 and payment and counterpayment under a swaps transaction.100 In addition there are a number of other first instance decisions where such a possibility was accepted, even though on the facts it did not apply.101

C. Exceptional Cases, or Instances of a General Principle? The above are clearly examples of cases where, whatever Lord Ackner may have thought in Fercometal SàRL v Mediterranean Shipping Co SA,102 there is indeed a ‘via media’ available to the victim of a breach, allowing him to keep the contract alive while nevertheless not for the moment performing it. They cover, moreover, a wide range of situations: the sale of goods, the supply of services, and employment contracts comprise a large proportion of ordinary contracts. This looks, at least at first sight, much like evidence that as a general rule Anglo-Australian law does, rather than does not, accept a right of suspension. What arguments can be raised against this view? Three come to mind.

95 Because (a) the duty to deliver satisfactory goods is stated to be a condition (s 14(6) of the Sale of Goods Act 1979 (UK)); and (b) this is defined as ‘a condition, the breach of which may give rise to a right to treat the contract as repudiated’ (see ss 11(2) and 11(6)). The Australian state legislation follows the same scheme. 96 V Mak, ‘The Seller’s Right to cure Defective Performance—A Reappraisal’ (2007) LMCLQ 409; J Carter, ‘Party Autonomy and Statutory Regulation: Sale of Goods’ (1993) 6 Journal of Contract Law 93, 119; The Kanchenjunga [1990] 1 Lloyd’s Rep 391, 399 (Lord Goff). This was the position, it would seem, at common law: Borrowman Phillips & Co v Free & Hollis (1878) 4 QBD 500, and cf PT Berlian Laju Tanker TBK & Anor v Nuse Shipping Ltd [2008] EWHC 1330 (Comm) [2008] 1 CLC 967 [69] (Christopher Clarke J). So too with the buyer: see Kronman & Co v Steinberger (1922) 10 LlLLR 39 (right to cure defective payment). 97 Hongkong Fir (n 53). This point is not new: it is well made in Carter, Breach of Contract (n 37) 3–33. 98 Hongkong Fir (n 53) 36 (Salmon J), 56–59 (Sellers LJ), approved in Devlin (n 94) 194. Some earlier a uthority agreed: see, eg, Stanton v Richardson (1873–74) LR 9 CP 390 (accepted, charterer could always refuse to load unseaworthy ship: only reason why charterer entitled to cancel was inability to make ship seaworthy in a reasonable time); also Kish v Charles Taylor, Sons & Co [1912] AC 604, 616 (Lord Atkinson). 99 Dennis & Sons Ltd v Cork SS Co Ltd [1913] 2 KB 393, 399 (Scrutton LJ); cf The Karin Vatis [1988] 2 Lloyd’s Rep 330, 332 (Lloyd LJ). Scrutton LJ in Dennis specifically distinguished this from a lien: ibid. 100 Longmore LJ in Lomas (n 89) [34]. 101 DRC Distribution Ltd v Ulva Ltd [2007] EWHC 1716 (QB) (exclusive purchasing agreement and duty to supply); Astrazeneca UK Ltd v Albemarle International Corp & Anor [2011] EWHC 1574 (Comm) [2011] 2 CLC 252 (duty to deliver goods and duty to allow seller to match third party supply offer). 102 Fercometal (n 40) 805.

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First, it could be argued that the cases given are simply exceptions, or perhaps cases of express or implied contrary agreement. But the difficulty here is not hard to see. It is not immediately apparent why contracts of sale, contracts to supply services or employment contracts should be taken as exceptional: indeed, they seem some of the most normal contracts encountered in everyday life. Nor does the idea of implied contrary agreement take us much further. True, the test for implying a term, at least in England, is perhaps less demanding than it was, being based not so much on necessity as on ‘what the [contract], read as a whole against the relevant background, would reasonably be understood to mean’.103 But it is still difficult to see what it is about lump sum, employment or sale of goods contracts that makes them different from ordinary contracts so as to justify the conclusion that they, but not ordinary contracts, ‘would reasonably be understood to mean’ that there should be a right to suspend performance in the face of breach by the other party. Nor, for that matter, is there any sign in any of the cases where rights to withhold performance arise was decided on any ground remotely related to implied terms. On the contrary: all these cases have effectively gone on the assumption that classifying certain obligations as mutually dependent (and hence giving rise to rights of withholding performance pending counterperformance) is independently justified. Secondly, there is Fercometal SàRL v MSC Mediterranean Shipping Co SA104 itself. There, steel stockholders chartered a vessel to carry steel from Durban to Europe; it was agreed that the vessel must be loaded by 9 July at the latest. On 29 June the shipowners said they could not load until mid-July. Three days later the charterers purported to cancel the charter for failure to meet the deadline. This was technically repudiatory because, properly interpreted, the contract allowed cancellation only once the deadline had passed. The owners then changed tack, ignored the charterers’ repudiation and insisted that the vessel would load on time after all. She did not: after 9 July the charterers formally cancelled the charter. To the owners’ action for dead freight, the charterers answered said that the owners could not complain because they could not themselves have rendered a performance that the charterers would have been bound to accept. The owners riposted that the charterers’ repudiation had absolved them from any need to perform. The House of Lords sided with the charterers, on the basis that the owners could not at the same time keep the contract alive and deny their own obligation to perform it. A person faced with anticipatory repudiation, he said, may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties …105

At first blush this looks a serious objection to the theme of this chapter. However, it needs to be noted that Fercometal involved not an ordinary breach of contract by failure to perform,

103 Attorney-General (Belize) v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 [21] (Lord Hoffmann). This formulation is itself controversial. The High Court of Australia apparently was prepared to accept the Belize case for the sake of argument in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169. But other Commonwealth courts have rejected it: eg Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] SGCA 43, [2013] 4 SLR 193. 104 Fercometal (n 40). 105 ibid 805 (Lord Ackner).

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but an anticipatory repudiation. This, it is suggested, is a vital distinction. An anticipatory repudiation is not a breach, or even a non-performance, as much as a proposal for the parties to abandon performance on the basis that if accepted the repudiator pay damages to be assessed.106 It is a take-it-or-leave-it offer: and in these circumstances there are very good reasons for saying that the only possible reaction to it, apart from preserving the status quo, is unequivocal acceptance leading to termination.107 There is also a further point. An important point of any right of one party to suspend performance when faced with a breach is its use as a lever to obtain performance due but unforthcoming, But this does not apply in the case of anticipatory repudiation: there is here no breach at all, and hence no performance due and owing to be extracted.108 Thirdly, there is a doctrinal argument put forward by John Carter. This is that rights to withhold performance do exist, but—unlike rights to terminate—are not properly viewable as part of the law of breach of contract. On the contrary: any connection with breach is merely contingent. As he puts it: If the promisor undertook to fulfil the condition precedent, the promisee’s ability to withhold performance may be associated with breach. However, even in cases where performance is intended to be concurrent, the basis for the right is failure of the condition precedent, not breach of contract.109

In other words (to take a concrete example), a buyer does not have to pay for goods so long as the seller fails to provide them: but this is nothing to do with breach because it makes no difference in this connection whether or not the seller was in breach of contract. Nevertheless, this argument is unconvincing. To begin with, it rests essentially on a distinction without a difference. Admittedly, commentators dealing with the right not to perform when faced with breach tend to regard talk of conditions precedent as a quaint nineteenth-century anachronism which contemporary lawyers should have grown out of.110 But it is actually hard to see any appreciable difference between saying ‘X can decline to perform on account of Y’s breach [of a condition, or a term going to the root of the contract, or whatever]’, and saying ‘X’s duty to perform is conditional on Y’s doing his part and avoiding committing a breach [of condition, etc]’. They are two sides of the selfsame coin. Furthermore, there is also a more powerful objection. The suggestion that termination is a reaction to breach whereas the right to suspend performance depends on a condition precedent immediately runs encounters the point that the right to terminate can equally extend beyond breach. Jackson v Union Marine Insurance Co Ltd,111 holding a charterer 106

Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699, 731–32 (Winn LJ). Bell Electric Ltd v Aweco Appliance Systems Gmbh & Co KG [2002] EWHC 872 (QB), [2002] CLC 1246 [29] (Elias J). This was essentially the point in The Santa Clara [1996] AC 800; the only issue in that case being whether the sellers’ act there (selling the relevant goods elsewhere) was sufficiently unequivocal. 108 Unless one says that the repudiator might be persuaded to change his attitude, on the basis that an anticipatory repudiation, once withdrawn, cannot be accepted: see eg Stocznia Gdanska (n 42) [87] (Rix LJ) and Bournemouth University Higher Education Corpn v Buckland [2010] EWCA Civ 121, [2011] QB 323 [39]–[40] (Sedley LJ). But this is hardly convincing. 109 Carter, Breach of Contract (n 37) n 3–33. 110 ‘Before the middle of the nineteenth century, however, the common law treated the innocent party as discharged from further performance, not because the other party had committed a breach of contract, but because he had failed to perform a condition precedent to the obligation of the innocent party’—Lord Millett in Hurst v Bryk (n 53) 193. See too, earlier, Hongkong Fir (n 53) 67 (Diplock LJ). 111 Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125. The case in fact involved a claim against underwriters for lost charter freight: but nothing turns on this. 107

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j ustified in cancelling a charter for late delivery even where due to an excepted peril, is a case in point; another is Poussard v Spiers & Pond Ltd,112 where an impresario’s right to terminate an actress’s employment for non-attendance at rehearsals was said to be precisely the same whether or not her non-appearance was excused (which there it was).113 In short, it is submitted that, aside from a handful of first instance English decisions and a number of dicta, the authorities are largely in favour of a right to suspend performance: that the arguments against such a right are insubstantial; and that such a right presumptively exists at common law in the case of contracts generally. The extent of such a right is discussed in the remaining sections.

D. The Right to Withhold Performance: Features If there is indeed a general right in English law for a person faced with breach to withhold performance, what might it look like? The formal answer is of course that, like the right to terminate,114 the right not to perform is a matter of construction of the contract.115 More helpfully, however, it is suggested that there are two essential requirements: (a) that the obligations concerned be genuinely dependent; and (b) that there be nothing in the contract that obliges the party to give credit to the other party. If these are satisfied, then it is suggested that there arises a right to refuse to perform unless and until counterperformance is forthcoming. Such a right, it is suggested, arises automatically, without the need for notice, and (with one possible exception) is unaffected by the doctrine of election that applies to rights to terminate.

E. Mutually Dependent Obligations The civil law position is uncompromising: all obligations under a mutual contract are presumptively interdependent.116 Any principle of English law allowing withholding of performance cannot, it is suggested, go this far: to this limited extent at least the dicta against a general right may still hold good. Looking at the cases where courts have recognised a right to withhold, it is suggested that a better way to characterise mutual dependency is to say that it will apply in three limited situations. One is where it can be fairly said that two performances are wholly or largely the ‘direct quid pro quo’ for each other.117 To some extent this parallels the ‘root of the contract’

112

Poussard (n 52). ibid 414; see too Jackson v Union Marine Insurance Co Ltd (n 111) 145–46 (Barmwell B); also Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106, 137 (Lord Denning MR). 114 Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, 251 (Lord Reid), 256 (Lord Morris). 115 DRC Distribution (n 101) [39] (Flaux J); Astrazeneca UK Ltd (n 101) [249] (Flaux J); Greene King Plc v Quisine Restaurants Ltd [2012] EWCA Civ 698 [15] (Patten LJ). See too the earlier Eastern Counties Railway Co v Philipson (1855) 16 CB 2. 116 See section II above. 117 See Astrazeneca UK Ltd (n 101) [249] (Flaux J); see too Sunrise Brokers (n 85) [59] (Richard Salter QC) (appeal dismissed on other grounds, [2014] EWCA Civ 1373, [2015] ICR 272). 113

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formulation for termination (though obviously the conditions may be different).118 Examples are duties to pay for goods and to deliver them; to pay the price of real estate and to convey it; to work and to pay a salary; and so on. In the case of promises to supply goods or services services over time, whether particular payments can be matched up to particular goods or services is a matter for interpretation, with apportionment where necessary.119 In this connection it is suggested that the courts will lean in favour of a reasonable apportionment, for example holding that in instalment sales payment for each instalment relates to that instalment, even if they also hold that that failure to pay for one instalment will not justify withholding future ones.120 (To this extent it is suggested that the blank exclusion in The Agios Giorgis121 of any right in an unpaid charterer to withdraw services is difficult to support.) On the other hand, it may well be clear that the term broken by the claimant and that unperformed by the defendant are not connected closely enough to be counterparts of each other.122 On the other hand, if the promises are merely subsidiary to the main object of the contract, then it is unlikely that they will be held interdependent.123 For example, in an exclusive supply agreement the obligation to give credit is unlikely to be regarded as interdependent with the obligation in the buyer not to obtain supplies elsewhere.124 Secondly, while the paradigm case is mutual interdependence (allowing either party to withhold performance against breach by the other), there is no reason why the relationship should not in suitable cases work only one way. For example, in contracts to provide services, it is normally the assumption that payment is made after receipt. In such a case the right of withholding would work one way: absent service payment could not be claimed, but not vice versa.125 Third, the breach of one term may be such as seriously to affect what the other party expected to get, or to make that other party’s performance substantially different from that contemplated. An old case in point is Roberts v Brett,126 where a high-risk cable-laying contract required security from each party for due performance. When no surety was forthcoming from the plaintiff, this was held to justify non-performance by the other party: the clear contemplation of the parties was for performance against security, not performance

118 This is an obvious qualification. One day’s French leave will not generally expose a worker to termination, but will indubitably justify withholding a day’s pay until the time is made up: see Miles v Wakefield MBC (n 81). 119 See Hartley v King Edward VI College [2015] EWCA Civ 455; [2015] IRLR 650 (teachers’ industrial action: daily deduction on basis of annual salary divided by workdays in year). 120 See the old decision in Mersey Steel & Iron (n 41). And cf London Gas-Light Co v Chelsea Vestry (1860) 8 CB NS 215 (payments for lighting). This might explain the decision in Canterbury Pipe Lines (n 47) referred to above: can progress payments necessarily be referred to particular work? 121 Agios Giorgis (n 31). 122 For an example, see Valeo Matériaux de Frictions SA v VTL Automotive Ltd [2005] EWHC 1855 (TCC) (composite supply of materials and know-how: no suspension of payments for know-how against demand for supply of satisfactory materials). 123 A straightforward instance, of respectable vintage, is the ability of a lessee to sue for breach of covenant despite rent arrears: see Edge v Boileau (1885) 16 QBD 117 and Yorkbrook Investments Ltd v Batten (1986) 52 P & CR 51. 124 DRC Distribution (n 101) [38]–[48] (Flaux J). See too Astrazeneca UK Ltd (n 101). 125 Bolton v Mahadeva (n 72) is one such case. For another, more commercial, example, see the shipbuilding case of Covington Marine Corp v Xiamen Shipbuilding Industry Co [2005] EWHC 2912 (Comm); [2006] 1 CLC 624, 646 (cross-guarantees to be provided by builders and buyers in that order: when none provided by builder, open to buyers to keep contract alive but not to provide their own guarantee pending receipt). 126 Roberts (n 58).

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tout court. A more recent instance is the charterparty case of Hyundai Merchant Marine Co Ltd v Karander Maritime Co Inc;127 in that case breach of the obligation to give a period of notice before delivery was held to allow delay in taking delivery, even though it explicitly did not allow termination.128 Yet again, where a contract provides for stage payments, this may be evidence that what was promised was in essence funded performance: if so, failure to make a payment may be regarded as justifying a cessation of work,129 although other matters may suggest the contrary.130

F. No Contrary Intent Even though two obligations may be closely related, there may of course be other reasons for not regarding them as dependent. The fact that one falls to be performed before the other is one;131 another is the lack, in a contract where performance is to take place against a background of stage payments, of any adequate connection between different stages of the work and particular payments.132 Yet another is a possible disproportion between the performance not received and the claimed right not to provide return performance: although there is no necessary objection to allowing a person to escape an important obligation on the basis of a minor breach, it is submitted that such a disproportion remains some indication as to contrary intent.133

G. The Arising and Loss of the Right It is now clear that the right to terminate for breaches of condition or other repudiatory breaches is a matter of election.134 What is required is an unequivocal representation by the innocent party that he wishes to affirm or terminate, made with the requisite knowledge: and once made, the election is binding.135 Can the same thing be said about the right of suspension? If a party entitled to refuse performance pending receipt of a promised return says that he will perform notwithstanding,

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Hyundai Merchant Marine Co Ltd v Karander Maritime Co Inc [1996] CLC 749. ibid 753–54 (Mance J). 129 See the antique decision in Terry v Duntze (1795) 2 H Bl 389. 130 For example, a lack of clear connection between particular stages of performance: Ram Media Ltd (In Administration) v Ministry of Culture of the Hellenic Republic (Secretariat General of Sport) [2008] EWHC 1835 (QB) [172]. 131 Though the mere fact that one might, on some interpretations, become performable on an earlier date is not necessarily conclusive: Roberts v Brett (n 58). 132 Ram Media Ltd (n 130). 133 This indeed goes back to Mansfield CJ’s dicta in Boone v Eyre (n 56) 273n itself (‘If this plea were to be allowed, any one negro not being the property of the plaintiff would bar the action’). See too Macintosh v Midland Counties Ry Co (1845) 14 M & W 548, 558 (Alderson B). For a recent example, see MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2015] EWHC 283 (Comm) [42] (duty to pay substantial demurrage on containers not redelivered not dependent on technical notice to redeliver which owner bound to give). 134 A point put beyond any conceivable doubt in Geys v Société Générale, London Branch [2012] UKSC 63, [2013] 1 AC 523. 135 On the difference, see Chitty on Contracts (n 40) 24-001–24-008; Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, 882–83 (Lord Diplock); The Kanchenjunga (n 96) 399 (Lord Goff). 128

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does this amount to a binding election not to exercise his right? It is suggested that, perhaps surprisingly, the answer is No. The reason is that there is no need to regard the basis of this right as anything other than a simple condition precedent qualifying an obligation to perform. In such cases it is clear that election does not apply, and that to bind a contractor only estoppel will do.136 The case is fundamentally different from termination for breach, where the choice is genuinely between two irreconcilables—you cannot both confirm and nullify a contract—and therefore there must be machinery for election between the two. Thus, when judges talked in terms of one party’s performance as a condition precedent to the other party’s duty, as they did up to the mid-nineteenth century, the question of election was never in issue. If a party’s duty to perform was conditional and the condition was unmet, then no action lay against him for not performing, period;137 and if this is so, then it must follow that election is beside the point. There is, however, one possible exception: sale of goods. Because of the wording of the relevant legislation, the buyer who receives sub-standard goods, while apparently able to reject them and keep the contract open,138 is bound tout court by any election to accept them: there is authority to this effect in the House of Lords,139 and furthermore this seems to follow from the relevant legislation.140

V. Conclusion The conclusion to this chapter can be simply stated. Anglo-Australian common law does recognise a right to suspend or withhold contractual performance when faced with breach by the other side, not identical to the right to terminate but acting in parallel with it and sharing some of its features. The right is well-established and subject to fairly clear rules, and ought to be dealt with in more detail in the textbooks—if only to deprive the civil lawyers of one of their opportunities to be smug at the expense of Anglo-Australian c ommon lawyers.

136 See The Kanchenjunga (n 96) 398–99 (Lord Goff); also the insurance case of Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] 1 CLC 307. 137 See Beck (n 57) 419; Carter (n 65) 287. 138 See above, around n 96. 139 The Kanchenjunga (n 96) 398–99 (Lord Goff). 140 Under s 11(4) of the Sale of Goods Act 1979 (UK), a right to reject for matters such as unsatisfactory quality is lost as soon as the goods are accepted; and under s 35(1)(a) a statement that the goods are accepted amounts on its own to acceptance. The same applies in most Australian jurisdictions: see Sale of Goods Act 1923 (NSW), ss 16(3), 38(1) and Sale of Goods Act 1896 (Qld), ss 14(3), 37.

17 Vindicatory Damages JAMES EDELMAN

Over four days in November 2010, nine judges of the United Kingdom Supreme Court sat to hear argument in a case, R (on the application of Lumba (Congo)) v Secretary of State for the Home Department,1 where one of the key issues was whether substantial damages could be awarded, for reasons independent of punishment or deterrence, for a wrongful detention that had caused no loss. Such damages have sometimes been described as ‘vindicatory damages’. The label is not entirely apt, but it is often used in its etymological sense, deriving from vindicare or ‘claim’. In such cases, like the Roman vindicatio, the emphasis is upon the claim or, as we would say today, ‘the right’. In this chapter, I will use the label ‘vindicatory damages’ in that sense. They are not damages which aim to compensate. Nor do they aim to deter. Nor do they punish (although sometimes the label is used in that sense). Instead, they are damages that aim to vindicate a right that has been infringed, independently of any consequences. In Lumba, the court divided on the question of whether vindicatory damages were available, with six judges rejecting the existence of such damages and three favouring them. And in 2015, the High Court of Australia granted special leave in a case that raised the same issue, described as ‘whether a person wrongly detained, who would in any event have been lawfully detained, is entitled to compensatory damages’. However, special leave was revoked after the appeal began because the question on which special leave was granted was not adequately exposed by the submissions made on behalf of the appellant.2 To an observer who is not educated in the law, it might seem surprising that after hundreds of years of development, the answer to such a basic proposition is so heavily contested. Damages are probably the most common remedy in private law. They are claimed every day in courts around the world and have been claimed and described as ‘damages’ for centuries. But, as recently as 2007, key aspects of the law of damages were described by Lord Scott as ‘at risk … of becoming—if they have not already become—incoherent’.3 Lord Scott argued that there are only two types of damages: those which compensate for loss and those which vindicate rights.4 As will become apparent during this chapter, this is an extremely controversial proposition.

1 R (on the application of Lumba (Congo)) v Secretary of State for the Home Department [2011] UKSC 12; [2012] 1 AC 245. 2 Fernando by his Tutor Ley v Commonwealth of Australia [2015] HCA Trans 286. 3 Lord Scott, ‘Damages’ (2007) Lloyd’s Maritime and Commercial Law Quarterly 465, 465. 4 ibid 465.

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Perhaps the reason why such a fundamental question as the existence of damages with the purpose only to vindicate rights can still be the subject of so much debate in the twentyfirst century is that, like much of the common law, the law of damages has been developed slowly and incrementally without any express reference to a deep underlying theory. The common law uncertainty is compounded by the many statutes that provide remedial regimes expressed in the familiar common law language of ‘damages’, ‘compensation’, or ‘loss’ but without much further guidance. There is a view held by some leading writers that the decision in Lumba was wrong, and that substantial damages should be available to vindicate a plaintiff ’s right. Those who support an award of substantial damages to vindicate a right in this way include Professor Stevens,5 Professor Smith,6 Professor Carroll and Dr Witzleb,7 Dr Pearce and Professor Halson,8 and Dr Varuhas.9 On the other hand, Professor Barker has powerfully argued that vindicatory damages is a heterodox measure, and that any remedial gap can be resolved by expansion of traditional and recognised forms of damages.10 I do not seek in this chapter finally to resolve that debate. I am not finally committed to any position. Rather, my purpose is (i) to explain why vindicatory damages are controversial and (ii) to consider how the approach taken to this question might reveal deep norms that could govern the development of the law of damages in the twenty-first century. As a very brief outline of where I am going in relation to the fundamentally different norms that might underlie damages, an excellent discussion is contained in Dr Descheemaeker’s forthcoming work:11 The conflict is between one model, historically dominant, which sees the wrong—i.e. the violation of a right—as transparent in itself, the law looking to its factual consequences in order to compensate them, and an alternative model, increasingly influential in an age saturated with the language of rights, which sees the wrong itself as the compensable injury suffered by the claimant.

A third approach suggests that the law recognises both models. This chapter is divided into five sections. First, I discuss the concept of damages, including vindicatory damages, in legal textbooks over the last two centuries. Secondly, I consider some of the central authority in support of vindicatory damages. Thirdly, I examine why it is that we make awards of damages. Fourthly, I consider the decline of vindicatory damages in England. Fifthly, and finally, I revisit some of the authorities in support of vindicatory damages in light of the possible rationale for why we make awards of damages.

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R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 59–91. S Smith, ‘Duties, Liabilities, and Damages’ (2012) 125 Harvard Law Review 1727. 7 R Carroll and N Witzleb, ‘The Role of Vindication in Torts Damages’ (2009) 17 Tort Law Review 16, 43. 8 D Pearce and R Halson, ‘Damages for Breach of Contract: Compensation, Restitution and Vindication’ (2008) 28 OJLS 73. 9 J Varuhas, ‘The Concept of “Vindication” in the Law of Torts: Rights, Interests and Damages’ (2014) 34 OJLS 253. 10 K Barker ‘Private and Public: The Mixed Concept of Vindication in Torts and Private Law’ in S Pitel, J Neyers and E Chamberlain (eds), Tort Law: Challenging Orthodoxy (Oxford, Hart Publishing, 2013) 59. 11 E Descheemaeker, ‘Unravelling Harms in tort law’ (2016) 132 LQR 595. 6

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I. Vindicatory Damages in the Academic Lexicon My initial choice of topic for this chapter, and the conference from which it derived, was the influence of statute in the development of private law and particularly the relationship between common law and statute. One tragic event caused me to change my topic. The event was the death of Dr Harvey McGregor on 27 June 2015. Late the previous year, Harvey had asked me if I would continue the authorship of his book, McGregor on Damages12 in five years’ time after he had completed the 20th edition. He would then have been 94 years old. I agreed to do it. It is a mark of how important ‘The Book’ was to Harvey that his amazing partner of 50 years telephoned me the day after Harvey’s death, to speak to me as the prospective author, even though he was still in deep grief. I offer this chapter as a discussion of the academic tradition of which Harvey was the leading light, concerning the nature, meaning, and purpose of damages. One of the first modern English books on damages was written in 1760 by Serjeant Joseph Sayer. Sayer’s The Law of Damages13 began with the words ‘Damages are a pecuniary recompense for an injury’. He considered them simply as any money award for the infringement of another’s rights. Examples he gave included accounts of profits made by a defendant receiver, as well as losses suffered by a claimant arising from a defendant’s careless investment (citing 1 Rol Abr 575 Pl 27). Almost a hundred years later, in 1856, John Dawson Mayne published A Treatise on the Law of Damages.14 Like Sayer, Mayne defined damages as ‘the pecuniary satisfaction which a plaintiff may obtain by success in an action’.15 But Mayne deviated from Sayer in one key respect. Mayne conflated actions in respect of an infringement of a primary right (ie a secondary right) with actions for enforcement of primary rights, such as a right to an agreed sum.16 Today we would only consider awards based on infringements of rights to be damages. We would not describe the award of an agreed sum, such as the enforcement of a debt, as a damages claim. A century after Mayne first published his text on damages, the authorship of Mayne’s book (then in its 12th edition) passed to Dr Harvey McGregor. Dr McGregor was only the fifth author in a hundred years. McGregor’s work over the next eight editions of the book was described earlier this year at his memorial service, with only a small amount of hyperbole, as creating a work of such authority as had not been seen since Moses. McGregor spotted the fact that Mayne’s definition of damages was not necessarily tied to wrongdoing. In an attempt to confine the definition of ‘damages’ to wrongdoing, McGregor defined them as ‘the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract’.17 But this definition introduced two major restrictions that had not existed previously. It confined damages to compensation, and it also

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H McGregor, McGregor on Damages, 19th edn (London, Sweet & Maxwell, 2015). J Sayer, The Law of Damages (London, W Strahan, 1760). JD Mayne, A Treatise on the Law of Damages (London, H Sweet, 1856). 15 ibid 1. 16 J Austin, Lectures on Jurisprudence, R Campbell (ed), 5th edn (London, John Murray, 1885) Vol II, Lecture XLV, 763. 17 H McGregor, McGregor on Damages, 12th edn (London, Sweet & Maxwell, 1961) 3. 13 14

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confined them to common law wrongdoing. By the 19th edition, damages were no longer so confined. The 19th edition began with the sentence: ‘Damages are now defined in this book quite simply as an award in money for a civil wrong.’ Apart from compensatory damages, McGregor had chapters on exemplary damages, restitutionary damages, and nominal damages. For McGregor, like Sayer, damages were all about the consequences of wrongdoing. McGregor explained that ‘a book on damages should not and cannot deal with the question of when a wrong has been committed where no damage has been incurred, any more than with the question of when a wrong has been committed where there is no loss’.18 In light of McGregor’s later chapters on non-compensatory damages, I think that the sentence must be amended slightly by replacing ‘loss’ with ‘consequences’. For McGregor, a wrong without any consequences should not give rise to any damages. With this theory of damages, it is unsurprising that McGregor’s chapter on ‘vindicatory damages’ was devoted to rejecting them. The chapter begins with the line: ‘Vindicatory damages are a feature of the modern era, unheard of in the past’.19 Of course, as Professor Burrows observes, there is a sense in which all damages awards have the effect of ‘vindicating’ the plaintiff ’s right. But McGregor’s (and Burrows’) point is that there is no role for an award of substantial rather than nominal damages that has as its only function this goal of vindicating the right.20 As we will see, in the leading Supreme Court decision on this issue in Lumba, Lord Dyson relied on McGregor’s views in the 18th edition of his book21 for the conclusion that these damages did not exist in English law. In turn, in the 19th edition, McGregor observed that ‘just as the term vindicatory damages at last comes into use in English case law’, the decision in Lumba means that it is ‘left with nothing upon which to operate’.22

II. The Argument for Vindicatory Damages from Authority Those who defend the notion of vindicatory damages dispute McGregor’s suggestion that the concept is a novelty in the law. This part of the chapter is concerned with some examples of cases that are commonly relied upon as providing support for the concept of vindicatory damages.

A. Plenty v Dillon23 For an Australian audience, the best place to start is the decision of the High Court of Australia in Plenty v Dillon. Mr Plenty owned a small farm in South Australia. In 1978, he

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McGregor on Damages (n 12) 10 [1-019]. McGregor on Damages (n 12) 598 [16-001]. A Burrows, ‘Damages and Rights’ in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2012) 275, 304. 21 Lumba (n 1) [100]. 22 McGregor on Damages (n 12) 606 [16-015]. 23 [1991] HCA 5; (1991) 171 CLR 635, 645. 19

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lived there with his wife and 14-year-old daughter. A complaint was made to the police that his 14-year-old daughter had committed an offence and was in need of care and control. A justice issued a summons under the Juvenile Courts Act 1971–1975 (SA) for the child to appear in court. The police attempted to serve the summons by leaving it with Mr Plenty. The magistrate ordered that a new summons be issued and that Mr and Mrs Dillon attend the hearing of the complaint. Mr Plenty had made it plain in correspondence that the summons had to be served by post. But the two constables decided to serve it personally, rather than by post. They went to Mr Plenty’s farm where they found Mr and Mrs Plenty and two others having a conversation in the open garage. Mr Plenty refused to accept the summons so one of the police officers placed it on the car seat where Mr Plenty was sitting. As the police were leaving, Mr Plenty attempted to strike that officer with a piece of wood. A struggle ensued. Mr Plenty was arrested and subsequently charged and convicted. His conviction was later quashed. In the High Court of Australia it was accepted that the officers had no express or implied consent to go onto the appellant’s land. The High Court rejected the submission by the police officers that they had an implied authority deriving from the issue of the summons. The High Court remitted the matter back to the South Australian Supreme Court for an assessment of damages. However, in the course of the High Court decision, the Court went out of its way to respond to a statement from the trial judge that ‘even if a trespass had occurred’, the trespass was ‘of such a trifling nature as not to found [sic] in damages.’ Each of the two judgments in the High Court rejected this approach. First, in a passage quoted with approval by a joint judgment of the High Court in New South Wales v Ibbett,24 Mason CJ, Brennan and Toohey JJ said that ‘this is an action in trespass not in case and the plaintiff is entitled to some damages in vindication of his right to exclude the defendants from his farm’. The judgment of Gaudron and McHugh JJ was even more emphatic: We would unhesitatingly reject the suggestion that this trespass was of a trifling nature. The first and second respondents deliberately entered the appellant’s land against his express wish. True it is that the entry itself caused no damage to the appellant’s land. But the purpose of an action for trespass to land is not merely to compensate the plaintiff for damage to the land. That action also serves the purpose of vindicating the plaintiff ’s right to the exclusive use and occupation of his or her land. Although the first and second respondents were acting honestly in the supposed execution of their duty, their entry was attended by circumstances of aggravation. They entered as police officers with all the power of the State behind them, knowing that their entry was against the wish of the appellant and in circumstances likely to cause him distress. It is not to the point that the appellant was unco-operative or even unreasonable. The first and second respondents had no right to enter his land. The appellant was entitled to resist their entry. If the occupier of property has a right not to be unlawfully invaded, then, as Mr Geoffrey Samuel has pointed out in another context, the ‘right must be supported by an effective sanction otherwise the term will be just meaningless rhetoric’: ‘The Right Approach?’ (1980) 96 Law Quarterly Review 12, at p 14, cited by Lord Edmund-Davies in Morris v. Beardmore, at p 461. If the courts of common law do not uphold the rights of individuals by granting effective remedies, they invite anarchy, for nothing breeds social disorder as quickly as the sense of injustice which is apt to be generated by the unlawful invasion of

24

New South Wales v Ibbett [2006] HCA 57, (2006) 229 CLR 638, 646 [30].

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a person’s rights, particularly when the invader is a government official. The appellant is entitled to have his right of property vindicated by a substantial award of damages.

When the matter was remitted to the Supreme Court of South Australia for an assessment of damages, this clear guidance was heeded by the Master. He made an award of $167,000 (including $45,000 interest). In today’s money this would be considerably more than a quarter of a million dollars.

B. Attorney General of Trinidad and Tobago v Ramanoop25 The case relied upon most heavily in England as well as other jurisdictions which have the Privy Council as their ultimate appellate court as explicit support for vindicatory damages is the Privy Council decision in Attorney General of Trinidad and Tobago v Ramanoop. Mr Ramanoop had an altercation in a local bar in Trinidad. Later that evening a policeman and another man came to his house. Mr Ramanoop answered the door in his underwear. The policeman handcuffed him and slapped him for 5–10 minutes and abused him. The policeman continued to beat him. Mr Ramanoop was then shoved in the back seat of a car and driven to the police station. He was still in his underpants and was continually assaulted in the car. At the police station his head was rammed into the wall causing blood to gush from it. The police officer taunted him and poured rum over his head, burning the wound. He was taken to a bathroom and soaked in a shower and spun around until he was dizzy. He was again assaulted when he initially refused to sign a document. There was no doubt that Mr Ramanoop’s arrest and false imprisonment were unconstitutional and in breach of his rights under section 4(a) of the Constitution of Trinidad and Tobago, which recognises the fundamental right to liberty and security of the person. The trial judge awarded $18,000 for the deprivation of liberty and $35,000 for the assaults (a combined amount then equivalent to about $A16,000). But the trial judge held that he had no jurisdiction to award exemplary damages. The Court of Appeal allowed the appeal and remitted the matter for an assessment of what they described as ‘vindicatory/ exemplary’ damages. The Attorney General appealed to the Privy Council. The Attorney General argued that damages for breach of a constitutional right should vindicate the right, but it is not appropriate for the award to punish the state. The appeal was dismissed. Lord Nicholls gave the judgment of the Privy Council. He explained that common law damages are no more than a useful guide to the discretionary award under section 14 of the Constitution. Section 14 was not confined to ‘an award of compensation in the traditional sense’: An award of compensation will go some distance towards vindicating the infringed constitutional right. How far it goes will depend on the circumstances, but in principle it may well not suffice. The fact that the right violated was a constitutional right adds an extra dimension to the wrong.

25

Attorney General of Trinidad and Tobago v Ramanoop [2006] 1 AC 328.

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C. Support for Cases like Plenty and Ramanoop in Older Authority The remarks in Plenty v Dillon, and in Ramanoop were not novel. Nearly two centuries earlier, Gibbs CJ had said:26 Suppose a gentleman has a paved walk in his paddock, before his window, and that a man intrudes and walks up and down before the window of his house, and looks in while the owner is at dinner. Is the trespasser to be permitted to say, ‘here is a halfpenny for you, which is the full extent of all the mischief I have done’? Would that be a compensation? I cannot say that it would be.

If we go back even further, to the late Roman Republic, we see the same point being made in the story of Lucius Veratius. The XII Tables provided for penalties for the delict of iniuria. A less serious iniuria which did not involve broken bones or maiming had a prescribed penalty of 25 asses. Buckland argues that at the time the story of Lucius Veratius is being told, changes in the value of money meant that this penalty had become laughable.27 So the story is told by Aulus Gellius,28 quoting from Labeo, that Lucius Veratius walked around slapping people he did not like. Lucius was followed by his slave who would dispense 25 asses to the person that Lucius Veratius had slapped.29

D. General Damages Another example commonly relied upon in support of vindicatory damages is the award of ‘general damages’. The difficulty with the label ‘general damages’ is that it has been used to mean different things. One use of ‘general damages’ is to describe damages that fall within the first limb of Hadley v Baxendale.30 A different meaning, and the one with which I am concerned here, was explained in Prehn v Royal Bank of Liverpool,31 where Baron Martin said that general damages ‘are such as the jury may give when the judge cannot point out any measure by which they are to be assessed, except the opinion and judgment of a reasonable man’. The quantum of these damages, being the province of the jury, did not need to be pleaded.32 The law would infer the damages ‘from the nature of the act’.33 An extreme example which appears to support a vindicatory damages thesis is H West & Son Ltd v Shephard.34 Mrs Shephard was 41 years old when she was catastrophically injured

26

Merest v Harvey (1814) 5 Taunt 442, 443; 128 ER 761, 761. Buckland, A Textbook of Roman Law (P Stein (ed) 3rd ed, Cambridge, Cambridge University Press, 1975) 590. 28 Noctes Atticae 20.1.13. 29 The consequence of this story is a matter of dispute. Some argue that this led to a general Edict and a new remedy: D Daube, ‘Ne quid infamandi causa fiat’ in Atti del congresso internazionale di diritto romano e di storia diritto (Verona, 1951) 413; Buckland (n 27) 590. Others suggest that the Edict must have preceded the story: See P Birks, ‘Lucius Veratius and the Lex Aebutia’ in A Watson (ed) Daube Noster: Essays in Legal History for David Daube (Edinburgh, Edinburgh University Press, 1974) 39. 30 Hadley v Baxendale (1854) 9 Ex 341. See Monarch SS Co v Karshamns Oljefabriker [1949] AC 196, 221 (Lord Wright). 31 Prehn v Royal Bank of Liverpool (1870) LR 5 Ex 92, 99–100. 32 The Susquehanna [1926] AC 655, 661 (Lord Dunedin). 33 Stroms Bruks Aktie Bolag v Hutchison [1905] AC 515, 525–26 (Lord Macnaghten). 34 Shepherd v H West & Son Ltd [1963] UKHL 3, [1964] AC 326. 27 W

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in a street accident caused by the negligence of the defendant’s employee. She was given five years left to live. She was paralysed in all four limbs, unable to speak, but able to recognise people and to differentiate some taste. She had little ability to appreciate her condition. The trial judge made an award of £17,500 in general damages. On appeal to the House of Lords, by a 3:2 majority, this was upheld. In the course of their reasons, a majority of the House of Lords explained that an unconscious victim would still recover for loss of amenities even though she suffered no pain and suffering or mental anguish as a result of the loss. The suggestion that these damages might have no basis in loss upon which they can be calculated has led some leading academics to argue that they are not concerned with consequences of wrongdoing. Instead, it is argued by some that these damages operate to put a value on the infringement of a right. They operate to vindicate a right.

E. Loss of Use Cases Another example which is said to support vindicatory damages is a line of cases in which general damages are awarded for the loss of use of a chattel even though no financial loss is proved. The leading English cases are The Greta Holme,35 The Mediana,36 and The Marpessa.37 In each of these cases, a vessel was damaged and could not be used for a period of time. In each case, the Mersey Docks and Harbour Board was the plaintiff. It was a public authority. It could not make or distribute profit. In each case the Board failed to prove any financial loss incurred, such as by hiring an alternative ship. Yet in each case the Board recovered substantial damages for their loss of use of a damaged ship. The Mediana was the most stark. In that case, the Board had a substitute lightship which it had set aside to be used for just this eventuality. In Owners of the Steamship ‘Mediana’ v The Owners, Master and Crew of the Lightship ‘Comet’ (The ‘Mediana’),38 Lord Halsbury LC said the following: Of course the whole region of inquiry into damages is one of extreme difficulty. You very often cannot even lay down any principle upon which you can give damages; nevertheless it is remitted to the jury, or those who stand in place of the jury, to consider what compensation in money shall be given for what is a wrongful act. Take the most familiar and ordinary case: how is anybody to measure pain and suffering in moneys counted? Nobody can suggest that you can by any arithmetical calculation establish what is the exact amount of money which would represent such a thing as the pain and suffering which a person has undergone by reason of an accident. In truth, I think it would be very arguable to say that a person would be entitled to no damages for such things.

Nearly a century later, this point was repeated by the Privy Council in Greer v Alstons Engineering Sales and Services Ltd (Trinidad and Tobago).39 In that case, the Privy Council gave as an example the decision of the English Court of Appeal in Dixons (Scholar Green) Ltd v JL Cooper Ltd.40 In that case the plaintiffs were deprived of the use of a commercial vehicle for 11 weeks. The plaintiffs called no evidence to prove any loss so the trial judge 35

The Greta Holme [1897] AC 596. The Mediana [1900] AC 113. 37 The Marpessa [1907] AC 241. 38 The ‘Mediana’ (n 36) 116–17. 39 Greer v Alstons Engineering Sales and Services Ltd (Trinidad and Tobago) [2003] UKPC 46 [7]. 40 Dixons (Scholar Green) Ltd v JL Cooper Ltd [1970] RTR 222. 36

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awarded only £2 in damages. The Court of Appeal substituted for the trial judge’s award an award of £450. Some of those who support vindicatory damages argue that these damages for loss of use must be understood as damages marking the infringement of the plaintiff ’s right. In The Mediana, for instance, it is argued that the owners of the Mediana were no financially worse off. Nor did the public authority incur any pain and suffering. These awards, now commonly described as the ‘user principle’, are not confined to a small pocket of cases involving shipping or use of vehicles. In a recent passing off case, Winnebago Industries Inc v Knott Investments Pty Ltd (No 4),41 Yates J cited claims which succeeded in cases involving the use of land and chattels as well as intellectual property cases where the ‘use’ is merely acting in a way contrary to another’s rights.

F. Conversion Another example sometimes relied upon as an instance of vindicatory damages is damages for conversion of goods, as in Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5).42 Iraqi Airways committed the tort of conversion by taking possession of aircraft belonging to Kuwait Airways. The Kuwaiti planes had been brought to Iraq by Iraqi armed forces after the 1990 invasion of Kuwait. Kuwait Airways sued Iraqi Airways for damages for conversion including the costs of recovery and the loss of use. Iraqi Airways argued that the aircraft would have been lost to Kuwait Airways even if they had not been converted by Iraqi Airways, because they had already been converted by the Iraqi state. Hence, it was argued, Iraqi Airways should not be liable to pay damages. The House of Lords held that Iraqi Airways was liable to pay damages. It has been argued that this is an instance of vindicatory damages. The argument is that no loss was suffered by the acts of Iraqi Airways because the Iraqi state had already caused the loss. Hence, it is argued, the damages awarded in favour of Kuwait Airways cannot be for losses it suffered. These damages must instead be damages to vindicate the rights of Kuwait Airways to its aircraft.43

III. Why Do We Have Damages? In order to assess whether, as a matter of principle, vindicatory damages should be recognised, it is necessary to ask a more basic question. Why do we have damages at all? The answer to this question may depend on the meaning of ‘damages’. For some, ‘damages’ is entirely synonymous with ‘compensation’. So, in the opening paragraph in Haines v Bendall,44 Mason CJ, Dawson, Toohey and Gaudron JJ said this: Compensation is the cardinal concept. It is the ‘one principle that is absolutely firm, and which must control all else’: Skelton v Collins [1966] HCA 14; (1966) 115 CLR 94, per Windeyer J. 41

Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) [2015] FCA 1327. Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5) [2002] 2 AC 883. 43 Stevens (n 5) 64. 44 Haines v Bendall [1991] HCA 15, (1991) 172 CLR 60, 63. 42

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at p 128. Cognate with this concept is the rule, described by Lord Reid in Parry v. Cleaver [1969] UKHL 2; (1970) AC 1, at p 13, as universal, that a plaintiff cannot recover more than he or she has lost.

On this view, the reason why we have damages is obvious. It is to compensate the victim of wrongdoing for a loss that has been suffered. Different philosophical underpinnings for why we compensate victims might be identified. But on most accounts, the underlying reason supports a normative duty of a wrongdoer to repair the consequences of a wrong to the plaintiff. However, we might ask why the award of damages should only be concerned with the consequences to the victim? When the law recognises that an act is wrongful, why should the response of the law not be to ameliorate all of the consequences of the wrong? So, if a wrong has a number of consequences, then why should the law only ameliorate those consequences that affect the victim? For instance, suppose the wrongdoer has intentionally made a profit from the wrong. If the concern of the law is to ameliorate the consequences of the wrong then why should that profit not be stripped from the wrongdoer? Or if the nature of the wrong involves intended consequences where the act might be copied by others then why should that consequence not be attended by an award of exemplary damages? Or if the consequence of the wrong is that the plaintiff has entered a valuable transaction with the defendant then why should not restitution be made of the value that the defendant has obtained? As a matter of observable fact, the law recognises each of these responses. A focus only upon the consequences to the victim cannot account for exemplary damages. It cannot account for disgorgement damages. It cannot account for restitutionary damages. Exemplary damages are a well-recognised category of damages that are not concerned with loss. They contrast with aggravated damages which are damages awarded because the manner of the commission of a wrong is likely to have increased the loss suffered. In aggravated damages, the reason why the loss is increased is because the flagrancy of the violation would have caused distress to the claimant and injury to his or her feelings. This explains why it was held in England that aggravated damages cannot be awarded in favour of a corporate plaintiff.45 In Gray v Motor Accident Commission,46 Gleeson CJ, McHugh, Gummow, and Hayne JJ quoted from Windeyer J that aggravated damages are given to compensate the plaintiff when the harm done to him by a wrongful act was aggravated by the manner in which the act was done: exemplary damages, on the other hand, are intended to punish the defendant, and presumably to serve one or more of the objects of punishment—moral retribution or deterrence.

Disgorgement damages are another species of damages that is not concerned with loss but which aims to disgorge the profits made by a defendant. In equity, this award is well known. If a defendant breaches a fiduciary duty, or knowingly infringes a confidence, or knowingly infringes the trademark of another, courts would order an account of profits made by the defendant and, upon taking the account, disgorgement of the profits.

45 46

Eaton Mansions (Westminster) Ltd v Stinger Compania de Inversion SA [2013] EWCA Civ 1308. Gray v Motor Accident Commission [1998] HCA 70, (1998) 196 CLR 1.

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For common law wrongdoing an award of disgorgement of profits has been less well recognised. But it exists. An example is T Mahesan S/O Thambiah Appellant v M alaysia Government Officers’ Co-Operative Housing Society Ltd.47 In that case, the agent of a Malaysian housing society received a bribe of $122,000 to purchase land in Penang from a fraudster. The fraudster bought the land and sold it to the housing society for a net profit of $443,000. Then he disappeared. When the case reached the Privy Council, the issue concerned the assessment of damages at common law. Lord Diplock delivered the advice of the Privy Council and held that the housing society could elect whether to claim for its loss $443,000, or the profit made by the agent ($122,000). It could not have both. Although Lord Diplock described the right to disgorge the agent’s profits at common law as ‘money had and received’ rather than ‘damages’, it was clear that he was making the award of money for wrongdoing. It was not dependent upon loss. Indeed, the plaintiff had the election to choose it instead of loss. Lord Diplock explained that ‘the right of the principal to recover the amount of the bribe from the agent does not depend upon his having incurred any loss as a result of his agent’s conduct’.48 Restitutionary damages are another form of damages which do not require loss. Suppose I mistakenly pay you $100. It is well established that I have a prima facie claim against you for restitution of $100 based on unjust enrichment.49 The claim focuses upon your benefit from the $100, not my loss. Suppose that my mistake was caused by your deceit. Is it really the case that if the action were brought for restitution of unjust enrichment then I would be entitled to restitution, but if the action were brought for the tort of deceit then I would not? Now, of course, in almost all cases, the plaintiff who succeeds in an action for deceit will be perfectly happy with compensatory damages for the deceit. She will not need, and will almost never claim, restitutionary damages. But there can be circumstances in which the award of restitutionary damages might make a difference. Interest on the award is one such circumstance. In several decisions in recent years, judgments in the House of Lords and United Kingdom Supreme Court have recognised that restitution can be awarded for wrongdoing just as it can be awarded for unjust enrichment. In Sempra Metals Ltd v Inland Revenue Commissioners,50 Lord Nicholls described cases where a defendant obtained an objective benefit from wrongdoing as instances of ‘restitution for wrongdoing as distinct from restitution for unjust enrichment’. And in Benedetti v Sawiris,51 Lord Clarke spoke of cases involving ‘restitution for a wrong (trespass)’. The effect of an award of restitutionary damages is to attempt to remove a particular consequence of wrongdoing. The consequence is that a wrongdoer receives a benefit. The benefit might not be a profit as in the disgorgement cases. For instance, a person who steals an umbrella from a shop and returns it two months later will have to pay the value of the use of the umbrella. The damages for the use of the umbrella must be paid even if there

47 T Mahesan S/O Thambiah Appellant v Malaysia Government Officers’ Co-Operative Housing Society Ltd [1979] AC 374. 48 ibid 380. 49 Australia and New Zealand Banking Group Ltd v Westpac Banking Corp [1988] HCA 17 [11], (1988) 164 CLR 662; David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48, (1992) 175 CLR 353. 50 Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, [2008] 1 AC 561, 606 [116]. 51 Benedetti v Sawiris [2013] UKSC 50, [2014] 1 AC 938, 959 [24] (Lord Clarke).

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is no rain during those two months and even if the thief would never have bought the umbrella. He obtained a benefit, although not a profit, from the free use of the umbrella.52 Performance damages are a type of damages that Professor Coote has referred to as being appropriate where a defendant has promised performance to a plaintiff but failed to deliver it.53 In some cases, a court will order specific performance which will require performance of the obligation in a similar way as the duty required, albeit after the order is made. But if an award of specific performance is not made, the court can make a money award which will enable the plaintiff to obtain the promised performance from a third party rather than from the defendant. Commentators such as Professor Smith have preferred the description of ‘substitutionary damages’ to describe these money awards that permit the plaintiff to obtain performance herself.54 As Smith explains, the purpose of these damages is to ‘undo, in a literal sense, the effects of breach’55 by providing a money substitute of the cost of obtaining a cure. Whether described as ‘performance damages’ or ‘substitutionary damages’, the label reminds us that the award focuses on the value of performance rather than loss. As Dr Winterton has explained:56 the claimant has not suffered any loss in the sense in which this term is typically understood. Rather, to the extent that any ‘loss’ was suffered, it was a loss of the performance that the innocent party was entitled to under the contract … references to ‘loss’ should be confined to describing deteriorations in a party’s factual position.

An example is the High Court of Australia’s decision in Clark v Macourt.57 In that case, the purchaser of defective straws of sperm recovered the value that the straws would have had if the contract had been performed, even though the purchaser had acquired new straws and defrayed much of that cost by sale to patients. As Hayne J said the money award ‘reflects a normative order in which contracts must be performed’.58 And, as Keane J said:59 it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed.60

A. The Function of Damages In light of these different measures of damages, a hypothesis concerning the function of an award of damages can be expressed. Each of these awards of damages has in common

52 See

Sempra Metals (n 50) [102] (‘the equivalent of a massive interest free loan’). See B Coote, ‘Contract Damages, Ruxley and the Performance Interest’ (1997) CLJ 537; and I Wallace QC, ‘Third Party Damage: No Legal Black Hole?’ (1999) 115 LQR 394. 54 S Smith, ‘Substitutionary damages’ in C Rickett (ed), Justifying Private Law Remedies (Oxford, Hart Publishing, 2008) 93. 55 ibid 114. 56 D Winterton, Money Awards in Contract Law (Oxford, Hart Publishing, 2015) 163. 57 Clark v Macourt [2013] HCA 56; (2013) 88 ALJR 190. 58 ibid [11]. 59 ibid [130]. 60 Quoting from the Privy Council in Wertheim v Chicoutimi Pulp Co [1911] AC 301, 307–08. 53

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a concern to ameliorate a consequence of the wrong. The consequence to be ameliorated might be the loss to the plaintiff (compensatory damages). Or it might be the message that the breach would otherwise send to others (exemplary damages). Or it might be the profits made by the defendant (disgorgement damages). Or it might be the wrongful transaction that has occurred (restitutionary damages). Or it might be the failure to obtain the promised performance which was not provided (performance damages). Understanding damages in this way also explains when it will be possible to cumulate the awards of damages. Consider, for example a plaintiff who seeks both compensation for loss and disgorgement following an account of profits. If the concern is with ameliorating the consequences of wrongdoing, then a plaintiff should generally have to elect between the larger of the compensation and the disgorgement of profits, once both have been quantified. The plaintiff will elect to claim the higher amount. This will have the effect of fulfilling the function of the other, smaller, award. This is the legal position.61 Although the different species of damages are expressly concerned with the amelioration of various consequences of wrongdoing, the award of damages does not seek the impossible goal of ensuring that all consequences of wrongdoing are eradicated. That would be an impossible endeavour. Take deterrence for example. Even if damages were set at the highest possible level for deterrence—to ensure bankruptcy of every individual who committed the wrong—the damages would still not deter every person from committing the wrong. There is a vast literature on the operation of deterrence in the law, but it suffices to say that even those who argue that capital punishment is a significant deterrent do not suggest that it will deter everyone. The same is true of compensatory damages. The law has developed rules concerning the types of losses caused by a wrong that are recoverable. Some of those rules depend on the type of wrong (was it intentional or did it involve negligence?). Other rules depend on timing (was the loss suffered immediately or subsequently?). And, where the loss is a subsequent loss rather than an immediate one, there are further rules concerning the types of losses that will be too remote. For these reasons, the apparent simplicity of a consequentialist approach to damages— that is, that the goal of damages is to ameliorate the consequences of wrongdoing—nevertheless conceals some extremely difficult questions: the rules by which the law should determine which consequences should be ameliorated, when they should be ameliorated, and the manner of assessment of a damages award to do so.

B. Contrasting Vindicatory Damages The difficulty for vindicatory damages on this consequentialist view is that whatever their concern might be, it is not consequences. They are concerned only with the violation of the right, not with the consequences of the violation. In the language of Professor Stevens, they act as a substitute for the violation of the right.62 So even if there are no consequences of

61

Tang Man Sit v Capacious Investments Ltd [1996] AC 514. Stevens (n 5) 85; R Stevens ‘Rights and other things’ in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2012) 115, 127. 62

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the wrongdoing at all, there could be an award of vindicatory damages as a substitute for the wrong. The burden upon those who advocate vindicatory damages, however, is to explain why any award of further damages is needed even when the law has responded to all consequences of a wrong, including sending any required message about the impropriety of the wrongful act by an award of nominal or exemplary damages. Or, put another way, if the law has already done everything to ameliorate all consequences of a wrong, so that the wrongful act can be treated as not having any effect, then why does there need to be a substantial award of damages, rather than nominal damages simply to affirm that a wrong has occurred? One suggestion is made by Professor Smith.63 He argues as follows: by requiring that wrongdoers do or provide something for their victims, the law can represent in tangible form the facts that the behaviour that it is condemning is a wrong that the defendant did to the plaintiff and, at the same time, the right that it is affirming is a right held by the plaintiff against the defendant. In criminal law, where the wrong is understood as a wrong against the public, this message is often conveyed by requiring the wrongdoer to pay a fine to the state.

Professor Smith is right that in criminal law the money award does indeed send a ‘message’ to the wrongdoer (specific deterrence) or others (general deterrence). That is its function. But that is a consequentialist function. It is a deterrent to ensure that the wrong does not have the consequence of being repeated. So too, in statutory instances of civil penalties. In such cases, the award is often described by its key function, deterrence. But if there is no need to send a message of deterrence, and no need to ameliorate any other consequences of the wrong, then what purpose is served by making a plaintiff pay substantial damages simply to represent that a wrong has occurred? Why would not a nominal award be sufficient?

IV. The Decline of Vindicatory Damages in Lumba I come then to R (on the application of Lumba (Congo)) v Secretary of State for the Home Department,64 in which the Secretary of State had unlawfully detained foreign nationals prior to deportation by applying an unpublished policy. The prisoners would have been lawfully detained if the Secretary of State had applied the published policy. The Secretary of State had committed the tort of false imprisonment. But the foreign nationals had been caused no loss, because but for the false imprisonment they would have been detained in any event. A majority of the Supreme Court (6:3) held that the foreign nationals were entitled only to nominal damages. I will discuss the decisions of the three dissentients in my conclusion in this chapter. In this section I want to focus on the decisions of the majority. The majority was comprised of Lords Phillips, Rodger, Brown, Collins, Kerr and Dyson. The primary judgment on the question of vindicatory damages was given by Lord Dyson, with whom Lords Collins,65

63 64 65

Smith (n 6) 1754. Lumba (n 1). ibid [219].

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Kerr,66 Phillips,67 Brown, and Rodger agreed.68 Lord Dyson described vindicatory damages as an ‘unruly horse’. He said that if vindicatory damages were available for false imprisonment then they should be available for other torts as well.69 Lord Dyson said that it was one thing to say that an award of compensatory damages serves an (incidental) vindicatory purpose by vindicating the right but that it was quite another to make an award simply to reflect the nature of the wrong.70 In his concurring judgment on this point, Lord Collins emphasised that where the right to bodily integrity has been infringed and nominal damages are awarded because of the absence of loss, ‘To make a separate award for vindicatory damages is to confuse the purpose of a damages award with the nature of the award’.71 In other words, all damages awards including those which have the nature of compensation or the nature of deterrence, also have the incidental purpose of vindicating a right.

V. Revisiting the Authorities with which I Began The discussion in the previous section concerned doubts that might be expressed, and have been expressed, about the legitimacy of vindicatory damages. To return to the examples with which I began, it might also be doubted whether any of those cases could justify recognition of a category of vindicatory damages as a matter of authority.

A. Plenty v Dillon First, as to Plenty v Dillon, one might ask how those damages, worth a quarter of a million dollars today, were calculated for the two police officers who acted honestly and entered Mr Plenty’s property only to hand him a piece of paper that they should have sent in the post. The award, motivated by the remarks in the High Court, was $15,000, and was described as ‘aggravated damages’. The Master described the basis for that award as being the humiliation caused to Mr Plenty in front of his friends; his feelings of being ‘terrified and bewildered’ and that he had ‘lost everything’. The remainder of the damages were further, subsequent, losses suffered by Mr Plenty. The trespass triggered a depressive illness which had persisted for 19 years at the time of the assessment. For that depressive illness he received $100,000. And he received $5,000 in exemplary damages. As to the statement by Gibbs CJ in Merest v Harvey concerning the man who peeps in the window at the family eating dinner, a century and a half after Merest, in the leading English

66

ibid [238]. ibid [355]. 68 ibid [362]. 69 ibid [362]. 70 ibid [100]. 71 ibid [101]. 67

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case on exemplary damages, Lord Devlin explained that the sum awarded was so large as to suggest that it was intended to be punitive.72

B. Ramanoop What, then, about the Privy Council in Ramanoop, where the Privy Council recognised the ‘vindicatory’ award? It is necessary to quote from the Privy Council itself: An additional award, not necessarily of substantial size, may be needed to reflect the sense of public outrage, emphasise the importance of the constitutional right and the gravity of the breach, and deter further breaches. All these elements have a place in this additional award. ‘Redress’ in section 14 is apt to encompass such an award if the court considers it is required having regard to all the circumstances. Although such an award, where called for, is likely in most cases to cover much the same ground in financial terms as would an award by way of punishment in the strict sense of retribution, punishment in the latter sense is not its object. Accordingly, the expressions ‘punitive damages’ or ‘exemplary damages’ are better avoided as descriptions of this type of additional award.

It is clear that the expression ‘punitive damages’ is inappropriate if the purpose of the damages was not one of the objects of punishment. But Lord Nicholls thought that the function of the award included deterrence. Even if deterrence (ie the creation of an example) were to be shorn from punishment, it is hard to see why the label ‘exemplary damages’ was inappropriate. The decision in Ramanoop was followed by a succession of Privy Council decisions which awarded vindicatory damages.73 The last of these brought the exemplary nature of the award into the open. Although the Privy Council said that the purpose of the award was to vindicate the right of the claimant, the Privy Council also explained that the ‘award of damages for breach of constitutional rights has much the same object as the common law award of exemplary damages’.74 For that reason, an award of vindicatory damages could not be combined with one for exemplary damages.

C. General Damages The difficulty with seeing general damages in this way is that the most common instances in which general damages are awarded is where there are actual or expected losses. For instance, the most common example is an award of general damages for pain and suffering in the law of torts. Pain and suffering may not be able to be measured in money but it is undoubtedly a loss. What then of a case like H West & Son Ltd v Shephard? That case is very controversial. There were powerful dissents by Lord Reid and Lord Devlin. In his Casebook on Torts,75 the late Tony Weir included numerous pages of text from Lord Reid’s dissent but only two

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Rookes v Barnard [1964] AC 1129, 1223. Merson v Cartwright and the Attorney General of the Bahamas [2005] UKPC 38; Subiah v Attorney General of Trinidad and Tobago [2008] UKPC 47; Takitota v Attorney General of the Bahamas [2009] UKPC 11. 74 Takitota (n 73) [13]. See also Lumba (n 1) [238]. 75 T Weir, Casebook on Torts 10th edn (London, Sweet & Maxwell, 2004) 643–46. 73

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sentences from the majority (Lord Morris and Lord Pearce). The two sentences included the statement from Lord Pearce defending the idea that general damages were not concerned with loss of happiness: ‘A man of fortitude is not made less happy because he loses a limb’. This echoes similarly strange, and sexist, remarks from Lord Halsbury in The Mediana76 that ‘What manly mind cares about pain and suffering that is past? But nevertheless the law recognises that as a topic upon which damages may be given’. The decision of the majority in H West was not followed by the High Court of Australia at a time when the High Court treated decisions of the House of Lords, although no longer binding, with considerable institutional deference.77

D. Use of Goods Some of the ‘user cases’ can be easily explained as cases where the award is restitutionary rather than compensatory for a loss. As I have explained above, where a defendant has wrongfully gained a benefit from a transaction with the plaintiff, then restitution should be made of the benefit received by the defendant from that transaction. This is a common explanation. It was the explanation given by Lord Nicholls in Sempra Metals Ltd v Inland Revenue Commissioners,78 of the remarks of Lord Shaw in Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson.79 Lord Shaw had said that a person who uses another’s horse without the owner’s consent must still pay the value of the use even though the horse has been restored ‘none the worse’ and ‘better for the exercise’. But the restitutionary damages explanation is not the only one. And sometimes it is not a viable explanation. A case like The Mediana cannot be understood as involving restitutionary damages. The defendant obtained no benefit from negligently damaging the Mediana. And the plaintiff suffered no financial loss nor any pain and suffering. So why were substantial damages awarded? To many people, the analogy drawn by Lord Halsbury with general damages for pain and suffering might seem strained. The Board suffered no subjective pain and suffering. It also was unable to point to any financial detriment to recover special damages. So where was the loss? It might be easier to see the loss if we asked instead, ‘what was the consequence’? The consequence of the defendant’s negligence was that the Board could no longer maintain its spare lightship. It had paid money for the ability to maintain a spare. But the wrongdoing had the consequence that this state of affairs of an existing spare had been lost. The award of general damages responded to that adverse consequence. That is why the damages in the Mediana were calculated not by reference to the cost of hire of another lightship, but by reference to the cost of maintaining the spare. As Lord Shand said:80 Instead of waiting for an emergency suddenly occurring, they have thought fit to have a ship ready. It costs them 1000l. a year to have it ready. It appears to me that the expense of having this ship

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The Mediana (n 36) 116–17. Skelton v Collins [1966] HCA 14, (1966) 115 CLR 94. 78 Sempra Metals (n 50). 79 Watson, Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 RPC 104, 119. 80 The Mediana (n 36) 122. 77

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ready instead of having to look for a ship when the emergency occurs, or rather a part of that expense, must properly fall upon the person who has been guilty of running down the lightship.

So too, in the Dixons case I mentioned above. In that case the £450 damages for the plaintiff ’s loss of use due to the negligence of the defendant was calculated by a rough analysis of expected loss of profit of around £40 a week.81 The decision was again based on a rough assessment of the consequences of the wrongdoing. In many cases, an adverse consequence is measured by the price which would be demanded by a reasonable person in the plaintiff ’s position, just as when the damages are sought on a restitutionary basis the question is often the price which would be paid by a reasonable person in the defendant’s position. But, as the Mediana shows, this measure is not the universal measure of the effect of the consequences. A leading example in Australia is Bunnings Group Ltd v CHEP Australia Ltd,82 where the rates used for the calculation of damages were not market rates for the period after the plaintiff had offered a rental at a substantially subsidised rate. The consequences of the Bunnings’ conversion in that period was that it had taken without payment the pallets for which CHEP sought lower than market value.

E. Conversion Turning then to the tort of conversion, the manner in which the causal test was posed was essential. Lord Nicholls (with whom Lords Steyn, Hoffmann and Hope agreed) said that the but for test for causation of loss ‘calls for a comparison between the owner’s position had he retained his goods and his position having been deprived of his goods by the defendant. Loss which the owner would have suffered even if he had retained the goods is not loss “caused” by the conversion. The defendant is not liable for such loss’.83 These remarks do not support a conception of damages for the tort of conversion as vindicating a right rather than compensating for loss. Instead, they suggest that the award is compensatory for loss, but with an attenuated test for causation. We see similar attenuation of causal tests in other areas such as deceit. The measure is still the consequential loss, but there is a different approach to causation. The assessment of damages that was subsequently made makes it clear that the award was not an award which focused on a figure, as at the date of infringement, to vindicate the right of Kuwait Airways. Rather, in a very detailed judgment, Langley J focused on numerous heads of damage concerned with what Kuwait Airways would have done with the use of its aircraft during the period of the conversion, including particular leasing arrangements into which it would have entered.84 The Kuwait Airways case, involving the departure from causal rules in the case of an intentional tort contrasts with the approach taken to negligence in Performance Cars Ltd

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Dixons (n 40) 227 (Davies LJ). Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342. 83 Kuwait Airways Corporation (n 42) [83]. 84 Kuwait Airways Corporation v Iraqi Airways Company [2002] EWHC 1626. 82

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v Abraham.85 In that case, Mr Abraham was found to have carelessly driven into the RollsRoyce owned by Performance Cars, and infringed the rights of Performance Cars. Mr Abraham was lucky. The same panel of the Rolls-Royce had been previously damaged by another wrongdoer who was liable to pay for the repairs. The Court of Appeal rightly said that Mr Abraham was a wrongdoer. But he had not caused any loss. But for his negligence, the Rolls-Royce’s panel still had to be repaired. Mr Abraham was not liable to pay damages for a car that had previously been damaged. Mr Abraham carelessly infringed the right of Performance Cars but he did not cause any loss, so he paid no damages. In Reaney v University Hospital of North Staffordshire NHS Trust,86 Lord Dyson giving a judgment with which Tomlinson and Lewison LJJ agreed, cited Steel v Joy87 with approval, saying: In our judgment, Performance Cars is still good law. It has been frequently referred to in the textbooks and, so far as we know, without disapproval. As a matter of logic and common sense, it is clearly correct. We do not consider that it produces an unjust result. The claimant is entitled to recover damages from the first defendant for the losses inflicted by him; and from the second defendant for any additional losses inflicted by him. It is true that, if the first defendant is not before the court or is insolvent, the claimant will not be fully compensated for all the losses that he has suffered as a result of the two accidents. But that is not a reason for making each defendant liable for the total loss.

VI. Conclusion I do not suggest that all awards of damages can be explained in terms of consequences; some cannot. In those cases, explanations in terms of consequences will be strained which might leave the impression that vindicatory damages are the only explanation. For instance, in Rees v Darlington Memorial Hospital NHS Trust,88 a majority of the House of Lords recognised that an award of £15,000 should be made in every case of wrongful conception. Lord Bingham explained that the ‘conventional award would not be, and would not be intended to be, compensatory. It would not be the product of calculation. But it would not be a nominal, let alone a derisory, award. It would afford some measure of recognition of the wrong done.’89 It is very difficult to see this award as anything other than an example of a vindicatory award. Some commentators, drawing from the language of ‘compensation’ in some of the other majority judgments in Rees, have sought to explain it as a case of ‘loss of autonomy’.90 This explanation has been endorsed very recently.91 But it must be approached with caution.

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Performance Cars Ltd v Abraham [1962] 1 QB 33. Reaney v University Hospital of North Staffordshire NHS Trust [2015] EWCA Civ 1119. Steel v Joy [2004] EWCA Civ 576, [2004] 1 WLR 3002. 88 Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2004] 1 AC 309. 89 ibid [8]. 90 See, eg, D Nolan, ‘New Forms of Damage in Negligence’ (2007) 70 MLR 59, 77–86. 91 Representative Claimants (Gulati) v MGN Ltd [2015] EWCA Civ 1291. 86 87

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There are two difficulties with understanding this award as concerned with loss of autonomy. First, there is not yet any generalised principle of damages for loss of autonomy. If such a loss were to be recognised, it would be necessary to explain why it is recoverable in some cases but not in others. Secondly, ‘loss of autonomy’ is not necessarily a loss in the sense of an adverse consequence. If I am about to step off the curb into the path of an oncoming car and you push me backwards, then I will have lost autonomy as a result of your actions. But I would not describe my loss of the autonomy to be run over by a car as a loss in the sense of being factually worse off. Almost every wrong to a person involves some degree of loss of autonomy. Any wrong which has consequences for a person will change the pattern of their lives, despite their wishes. But we do not say that every single wrong is subject to a ‘conventional’ award for loss of autonomy. It is necessary to identify the sense in which the loss of control that a person encounters over his or her life has adverse consequences as an undesired intrusion into the person’s life. A case like Rees illustrates the basic puzzle for those who advocate in support of vindicatory damages: if there are no consequences of a wrong that require rectification (separating out, for instance, an award for the genuine pain of childbirth) then what purpose would be served in making a substantial award of damages? The only remaining purpose could be deterrence. Indeed, it is noteworthy that two of the three dissentients in Lumba (including Lord Hope who rejected the conventional award in Rees) relied upon the decision in Rees, but, in doing so, emphasised not merely the ‘mark’ of wrongdoing but also that the award was ‘to encourage all concerned to avoid anything like it happening again’,92 or to ‘reflect the sense of public outrage, emphasise the gravity of the breach and deter further breaches’.93 The third dissentient in Lumba, Lord Walker, did not refer to deterrent considerations to justify the vindicatory award of £1,000 that he would have made. Instead, he relied upon the authority of Harvey McGregor for the proposition that ‘the common law has always recognised that an award of more than nominal damages should be made to vindicate an assault on an individual’s person or reputation, even if the claimant can prove no special damage’.94 There is no doubt that substantial damages awards are made for defamation independently of any existing financial loss or injury to feelings. Unfortunately, we will have no further advice from Harvey McGregor concerning whether these substantial damages for defamation are (i) a loose use of the word ‘vindication’ which is explicable, as Lord Hailsham explained, as compensation for likely future consequences if the libel ‘emerges from its lurking place at some future date’,95 (ii) an independent pocket of vindicatory damages, (iii) an award which should be expanded, (iv) an award which should be re-explained, or (v) an award which should be abolished.

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Lumba (n 1) [217] (Lady Hale). ibid [177] (Lord Hope). 94 ibid [194] (Lord Walker). 95 ibid [223] (Lord Collins) citing Broome v Cassell & Co Ltd [1972] AC 1027, 1071 (Lord Hailsham). 93

18 Persuasive Technologies: From Loss of Privacy to Loss of Autonomy ELIZA MIK

Imagine playing chess, and not having a clue what your adversary has in mind regarding the range of your next moves, while in fact the adversary has a pretty precise calculation of what you will do next.1

I. Introduction ‘Persuasive technology’ is commonly defined as an interactive computing system designed to change human attitudes or behaviours.2 The most prominent example of a persuasive technology is the web. Individual websites are designed to invoke, promote or facilitate some behaviours, while discouraging or inhibiting others. Most internet users are subject to various forms of technological persuasion that influence or even pre-empt their choices. Persuasive technologies constitute the practical embodiment of Lessig’s statement that code is the most effective modality of regulating behaviour. It must be remembered, however, that it is not code that regulates, but those who code that can control, to a greater or lesser extent, the behaviour of others. It is internet companies, such as Google, Amazon and Facebook, that regulate the behaviour of internet users by designing navigation sequences, creating consumption patterns and exploiting every known cognitive bias. Similarly, it is not persuasive technologies per se that warrant legal attention. It is the combination of technology and personal information that creates unprecedented capabilities on the side of internet companies and unprecedented weaknesses on the side of internet users. This combination enables new forms of commercial exploitation and discrimination. It also enables a move from the generic to the specific, from a universal web where everybody sees the same, to a personalised web where each browsing experience is tailored to a single user.

1 M Hildebrandt, Smart Technologies and the End(s) of Law, Novel Entanglements of Law and Technology (Cheltenham, Edward Elgar, 2015) 59. 2 B Fogg, Persuasive Technology: Using Computers to Change What We Think and Do (Burlington, Morgan Kaufmann, 2003).

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The problem does not lie in the fact that internet users can be identified or that their private details may be exposed. The problem lies in the fact that entire websites can be customised to match the cognitive preferences of specific individuals, and that entire marketing strategies can be designed to target specific persons based on their idiosyncratic (and frequently hidden) desires and vulnerabilities. If we associate autonomy with the ability to choose one action over another, then we must also draw a link between the loss of privacy, inherent in the collection and utilisation of the personal information, and the gradual reduction or manipulation of options on the side of those whose information is collected and utilised. The problem does not lie in technology, or computers, becoming autonomous but in technology increasingly encroaching upon human autonomy.3 There is, of course, no single technology that threatens the autonomy of internet users. The web must be seen as an amalgamation of many technological processes operating at different levels of the internet protocol stack. Hence, it is the mutually enforcing effect of multiple technologies, which affect user decisions at various points in their browsing behaviour and create an environment of pervasive manipulation.4 Common manifestations are such mechanisms as autocomplete, search engine bias, behavioural advertising or recommender systems. Consequently, the online experience is shaped by technologies designed to anticipate our actions and preempt our intent. Some persuasive technologies relate to the detection of user characteristics, others concern the selection of information and the determination of the manner of its presentation. The present discussion could be embellished with popular terms du jour such as artificial intelligence, machine learning, internet-of-things, and so forth. It is best, however, to keep technological hype and acronyms to a minimum and, instead, focus on the practices enabled by such technologies. For present purposes it is important to emphasise that the technological capabilities of internet companies are attributable to the proliferation of mobile broadband, cheap storage and, most importantly, advances in the ability to analyse (detect patterns in) data stemming from different sources. In parallel, the popularity of smartphones renders it possible to observe (speak: ‘collect information from and about’) internet users almost everywhere and all the time. It must also be remembered that most persuasive technologies are used by and for the benefit of internet companies although, prima facie, some seem to benefit users by creating more ‘user-friendly’ environments, ‘facilitating’ transactions or ‘optimising’ content. Despite popular assertions to the contrary, such ‘facilitations’ are designed to entice users to remain on a given website, interact with specific content and share (speak: ‘disclose’) even more personal information. This chapter provides some insights into the consequences of the technological ability to process personal information. The point made is simple: the loss of privacy, inherent in the collection of such information, inevitably leads to a loss of autonomy of those whose information is collected. The collection and processing of personal information goes beyond the

3 On the dangers of our increasing dependence on machines, see D Mindell, Our Robots, Ourselves and the Myths of Autonomy (New York, Viking, 2015); N Carr, The Glass Cage—Where Automation is Taking Us (London, Penguin Random House, 2015). 4 P Verbeek, ‘Ambient Intelligence and Persuasive Technology: The Blurring Boundaries Between Human and Technology’ (2009) 3 Nanoethics 231; S Brenner, ‘Law In An Era Of Pervasive Technology’ (2006) 15 Widener Law Journal 667, 670.

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mental discomfort and fear of inadvertent public disclosure. It directly affects the ability of internet users to make consumption choices or to form and discover their preferences. From the perspective of those who collect and process personal information, the motives are purely commercial. Traditionally, however, privacy scholarship has approached personal information from a human rights perspective, not as a property right.5 Increasingly, however, the economic aspect of privacy and the variety of commercial contexts in which personal information is exploited are recognised.6 This chapter argues that, given its commercial utilisation, personal information should not be analysed exclusively in the area of privacy protection but also in other areas, including consumer protection and contract law. More importantly, instead of focusing on the fact of collecting information, it is necessary to analyse its actual utilisation. This is where persuasive technologies become relevant. The discussion commences with some background observations concerning the ecosystem fuelling the internet economy. Subsequently, the concept of autonomy is explained, including its common association with the ability to make choices. A brief detour is made into the existing scholarship concerning the regulatory force of technology. The paper presents the main characteristics of persuasive technologies: their pervasiveness, opaqueness and their ability to regulate user behaviour. The core of the discussion, however, lies in the description of profiling and personalisation, both of which rely on the technological capability to analyse large amounts of user information. The chapter concludes with a broad overview of possible solutions to the problems inherent in the commercial deployment of persuasive technologies.

II. Transactions ‘in’ Information The use of persuasive technologies and their relationship with privacy can only be understood against the backdrop of the commercial web. The latter, contrary to popular perceptions, should no longer be perceived as an instrument of freedom or self-expression, but as a giant, opaque vending machine. Although in its original form the web was not designed for commercial purposes, increasing financial pressure to recoup investment in content and infrastructure has gradually transformed the web into a platform of content and service distribution. The web, in its commercial application, is an interconnected ecosystem of vendors, advertisers, content and service providers as well as technical intermediaries. It must be emphasised, however, that the majority of business models that evolved on, or around, the web rely on advertising, not on selling goods or services. Money is made (directly or indirectly) not only when users purchase books on Amazon or subscriptions to Spotify, but also when they click on advertisements or otherwise interact with online content. Every click is considered a commodity. The term ‘transaction’ must therefore be interpreted broadly. It includes not only traditional e-commerce (for example, buying tickets

5 See Universal Declaration of Human Rights, Art 12; for a more detailed discussion: IJ Lloyd, Information Technology Law, 6th edn (Oxford, Oxford University Press, 2011) 11, 12. 6 See, generally, A Acquisti et al, ‘The Economics of Privacy’ (2016) 52 Journal of Economic Literature 1.

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or apparel) but also content and media consumption (for example, news and entertainment) as well as internet-specific services, such as search engines and social networks. Internet users generally pay for such content with their personal information, which is commonly regarded as the currency of the internet economy,7 with a large number of online businesses built, almost exclusively, around its collection and utilisation.8 Personal information is traded within a complex ecosystem of advertisers, content providers, creditreporting agencies and traditional brick-and-mortar companies, to name a few. For many internet companies, personal information constitutes the essence of the transaction. For most internet users, however, the exchange of personal information for online content or services is a secondary and often inconspicuous aspect of their daily online activities (for example, utilising a search engine, participating in social networks etc).9 Users rarely appreciate that online resources are not provided ‘for free’ and that, in return for access to them, they relinquish control over their personal information. Consequently, the internet economy can be said to rely on barter transactions where the personal information of internet users is being exchanged for the right to utilise online resources. Monetary remuneration occurs upstream, between the companies directly or indirectly trading personal information.10 Most popular online platforms (Facebook, for example) and service providers (Google, for example) operate with one goal in mind: to collect more information in order to create detailed user profiles. Once we agree on the broad interpretation of ‘transaction’ and acknowledge that most internet business models centre on the collection and subsequent commercial utilisation of personal information, we realise that persuasive technologies are used not only to coax users to engage in online shopping, but also to entice them to generate more personal information. Unfortunately, the more information is generated the more effective persuasion technologies become.

III. Autonomy and Influence Autonomy, as manifested by a person’s actions, is broadly associated with intention, consent and self-determination. Its prerequisites are often described in negative terms as, for example, the ‘absence of external influences in the context for action’11 or the absence of ‘limitations on informational self-determination’.12 In particular, autonomy is frequently equated with the ability to make choices13 and further one’s interests.14 The close

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World Economic Forum, ‘Personal Data: the Emergence of a New Asset Class’ (January 2011). a basic explanation, see R Warner and R Sloan, ‘Behavioral Advertising: From One-Sided Chicken to Informational Norms’ (2012) 15 Vanderbilt Journal of Entertainment & Technology Law 49, 57–60. 9 Acquisti (n 6) 6. 10 J Whittington and CJ Hoofnagle, ‘Unpacking Privacy’s Price’ (2012) 90 North Carolina Law Review 1328, 1331. 11 R Brownsword, ‘Agents In Autonomic Computing Environments’ in M Hildebrandt and A Rouvroy (eds), Law, Human Agency and Autonomic Computing—The Philosophy of Law Meets the Philosophy of Technology (Abingdon, Routledge, 2011) 68, 69. 12 P Schwartz, ‘Internet Privacy and the State’ (2000) 32 Connecticut Law Review 815, 823. 13 MJ Radin, ‘Humans, Computers and Binding Commitment’ (2000) 75 Indiana Law Journal 1125. 14 R Calo, ‘Digital Market Manipulation’ (2014) 82 George Washington Law Review 995, 1034. 8 For

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association between choice and autonomy is also recognised in computer science.15 It is assumed that the ability to make choices requires an awareness of the available options16 and that individual autonomy is negatively affected by any manipulation or reduction of choice.17 Although autonomy is not synonymous with free will, the two concepts are interrelated. It is often questioned whether free will (and thus autonomy) exists. Recent scientific findings are often interpreted to indicate that neither our motives nor our decisions are the product of rational thinking and clear mental processes.18 Without going into detail, theories claiming that human decisions are the result of deterministic forces of neurological origin generally fail to distinguish between actions (such as raising one’s hand) and decisions (such as buying a book), and also between ‘legal’ and ‘psychological’ free will.19 One important aspect of these theories must, however, be highlighted. It is important to differentiate between dispositions, which may be the underlying causes of decisions, and control over such decisions. Dispositions may often be synonymous with sensitive personal information, as they may relate to the user’s health or to certain intimate aspects of his life. An addictive personality, for example, predisposes to compulsive shopping. That compulsion is, however, distinct from the acts of shopping and selecting specific items. An absence of control over dispositions does not translate into an absence of control over actions or individual selections.20 The existence of a disposition need not imply that an individual will necessarily engage in the behaviour he is predisposed to. Problems arise, however, when it becomes technologically possible to detect dispositions and when users with such dispositions are placed in environments that are deliberately designed to exploit such. After all, a person’s autonomy is also affected by external influences. The latter range from friendly advice from a relative to commercial pressure from a business partner. It is obviously impossible to establish what types or degrees of external influences are impermissible. Assumedly, the permitted level of persuasion in a decisionmaking environment largely depends on the context, including the reasonable expectations of internet users as well as their ability to detect and counteract such. It must also be assumed that external influences, such as persuasive efforts, will pose a greater threat to

15 B Friedman and H Niessenbaum, ‘Software Agents and User Autonomy’, AGENTS ‘97, Proceedings of the First International Conference on Autonomous Agents, 466, www.vsdesign.org/publications/pdf/friedman97 softwareagents.pdf. 16 Y Benkler, ‘Of Sirens and Amish Children: Autonomy, Information and Law’ (2001) 23 New York University Law Review 76, 110. 17 T Scanlon, ‘Promises and Contracts’ in P Benson (ed), The Theory of Contract Law (Cambridge, Cambridge University Press, 2001) 112–14. 18 K Burns and A Bechara, ‘Decision-Making and Free Will: A Neuroscience Perspective’ (2007) 25 Behavioral Sciences and the Law 2, 26; B Libet, ‘Unconscious Cerebral Initiative and the Role Of Conscious Will in Voluntary Action’ (1985) 8 Behavioral and Brain Sciences 4; J de Mul and B van den Berg, ‘Remote Control, Human Autonomy in the Age of Computer-Mediated Agency’ in M Hildebrandt and A Rouvroy (eds), Law, Human Agency and Autonomic Computing—The Philosophy of Law Meets the Philosophy of Technology (Abingdon, Routledge, 2011) 51, 52. 19 Contrary to the claim implicit from Libet’s study that an initial event potential signalled by neural activity predetermines subsequent actions, it appears that when choices are made, alternative possibilities for action are kept open; see S Fleming et al, ‘When the Brain Changes Its Mind: Flexibility of Action Selection in Instructed and Free Choices’ (2009) 19 Cerebral Cortex 2352, 2353. 20 N Farahany, ‘A Neurological Foundation for Freedom’ (2011) 11 Stanford Technology Law Review 1, 29–30.

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autonomy if they aim to take advantage of the user’s internal dispositions and if they are difficult or impossible to detect. Most internet users remain unaware of the fact or extent to which their online activities are being observed and manipulated. For a user, the persuasive effect of a technology that operates inconspicuously in the background is difficult to appreciate. Unfortunately, as technology becomes less visible, it also becomes more powerful.21 The deceptive simplicity of Google’s search interface hides not only unparalleled technological complexity and but also the capability to detect and pre-empt user choices. An awareness of influence generally translates into an ability to ignore or counteract it.22 If users know that they are being ‘observed, analysed and targeted’, they can adopt behaviours or deploy mechanisms to counteract such processes to protect not only their privacy but also their ability to make choices.23 Users may also believe that computer-generated output, such as search results or product recommendations, is more objective and therefore more credible than output provided by human agents. The commercial motive behind a particular message may thus remain undetected. The problem is aggravated by the fact that as more daily activity shifts online, the choices made by internet users are not limited to books or gadgets but, increasingly, include more complex decisions like insurance plans and financial products. Consequently, apart from the purely ethical or philosophical aspect of the technological influences on user autonomy, the manipulation of choice may have significant financial consequences.

IV. Regulating Behaviour To date, the legal implications of persuasive technologies have generally been discussed in the area of so-called ‘techno-regulation’.24 It is recognised that technology can facilitate, or promote, certain behaviours, while making others more difficult or impossible.25 It is also recognised that technological limitations of choice constitute a direct threat to the autonomy of those who make choices. The somewhat surprising aspect of the debate is that even when technology is deployed by a public actor, for a socially beneficial purpose and in a legally sanctioned context, any limitations of choice are perceived as undesirable or impermissible.26 The importance of preserving choice is also recognised in the areas of behavioural economics and regulatory theory.27 Individuals must not be prevented from

21 C Dwyer, ‘The Inference Problem and Pervasive Computing,’ Proceedings of Internet Research 10.0, Milwaukee, Wisconsin, October 7–11 2009, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1508513. 22 R Baldwin, ‘From Regulation to Behavior Change: Giving Nudge the Third Degree’ (2014) 77 MLR 831, 849; see also F Brunton and H Nissenbaum, Obfuscation (Cambridge MA, MIT Press, 2015). 23 Hildebrandt (n 1) 96, 97. 24 B van den Berg and RE Leenes, ‘Abort, Retry, Fail: Scoping Techno-Regulation and Other Techno-Effects’ (2013) 25 IUS Gentium 67. 25 R Brownsword, Rights, Regulation, and the Technological Revolution (Oxford, Oxford University Press, 2013) 11. 26 ibid. 27 R Thaler and C Sunstein, Nudge: Improving Decisions About Health, Wealth And Happiness (Yale, Yale University Press 2008); see also C Sunstein and R Thaler, ‘Libertarian Paternalism is not an Oxymoron’ (2003) 70 University of Chicago Law Review 1159.

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determining their true preferences or excessively ‘aided’ in their decision-making28—even if regulatory assistance is aimed at increasing individual welfare and even if the average person may not be capable of making the optimal decision. We must assume that the problem of influencing choice assumes yet another dimension when technologies are deployed by private commercial actors. When internet companies use persuasive technologies, the concern lies no longer in establishing the ‘limits of legal paternalism’, but with the legally permissible levels of transactional exploitation. The problem is not, however, limited to the type of actor. The threat to autonomy increases once we move from a physical environment to an online environment, from a setting where some elements can be designed with persuasive intent to a setting where most elements can be designed to persuade. Lessig emphasised that online, behaviour is predominantly regulated by code and that code is more effective in regulating behaviour than law or physical architectures.29 The code of websites literally defines what actions can be taken and predetermines the range of possible choices.30 More importantly, code has persuasive power—it not only establishes what options are available, but also influences (with varying degrees of effectiveness) which of the options is chosen.31 For example, most interactions between internet users and internet businesses occur ‘through’ the graphical user interfaces of websites. The area of Human Computer Interaction, or ‘HCI’, deals exclusively with designing interactions between humans and computer systems to achieve specific outcomes. Theoretically, HCI balances usability and functionality with the constraints introduced by limited screen space. In practice, however, the line between functionality and persuasion becomes blurred when websites are designed to encourage certain choices and discourage others.32 The ability to influence behaviour by means of colours, shapes and general layout33 is largely underestimated. Most of us frown at the mere thought that directing our attention towards particular elements or, to be more precise, having our attention directed towards them, may translate into the ability to determine our next action. Website design is not, however, based on intuitive speculations or the artistic needs of website developers, but on actual empirical findings. It may be more accurate to speak of interface engineering, rather than design, as in many instances each element of a website is tested for its effectiveness (in terms of usability or conversions, for example).34 ‘Design’ decisions derive from two types of test. First, internet companies conduct (or have access to the results of) lab experiments involving fMRI, EEG and eye tracking, all of which are technologies permitting the observation of physiological responses to external stimuli.35 In the

28 Baldwin (n 22) 835, 836. See also P Guldborg Hansen and A Jespersen, ‘Nudge and the Manipulation of Choice (2013) 4 European Journal of Risk Regulation 3. 29 L Lessig, Code version 2.0 (New York, Basic Books, 1999). 30 D Saffer, Microinteractions (Sebastopol, O’Reilly, 2013) 69. 31 S Wendel, Designing for Behavior Change (Sebastopol, O’Reilly, 2014) 126, 127. 32 J Jacko, The Human-Computer Interaction Handbook, 3rd edn (Boca Raton, CRC Press, 2012) 78–83. 33 N Nahai, Webs of Influence (Harlow, Pearson, 2012) 72. 34 Google’s lead designer, Doug Bowman, famously quit over a design dispute involving a request that he justify the width of a border (3, 4 or 5 pixels) with A/B testing; see: http://stopdesign.com/archive/2009/03/20/goodbyegoogle.html. 35 Functional magnetic resonance imaging (fMRI) is a technology enabling the measuring of brain activity by detecting changes in blood flow to various areas of the brain whereas electroencephalograms (EEG) can track and record brain wave patterns.

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first instance, the graphical layout of a website (in terms of content, manner of presentation and click-through patterns) is tested in controlled environments on consenting subjects. Second, alternative versions of a website are tested in live environments on actual online users until the most effective design is found.36 In this instance, website layouts are tested on internet users who are generally unaware of being part of an ‘experiment’. Both types of tests are designed to optimise websites in terms of their persuasiveness: which colour combination and layout will create the most profitable navigation pattern and entice the user to interact with specific content or click an advertisement. In sum, the web is a dynamic environment where online content is constantly tested and optimised to generate the maximum profit for internet companies. It must be appreciated that Facebook has not designed a friendly, easy-to-use interface to actually strengthen social bonds between its users, but to entice them to disclose more personal information. Users are, after all, more likely to share their information with friends than with corporate entities.

V. ‘Profiling’ and Detecting Vulnerabilities The information generated by users during their online activities creates a new type of ‘information asymmetry’. Traditionally, the term denotes a situation where the vendor knows more about a product than the buyer. Online, it also denotes a situation where the vendor also knows more about the buyer then the buyer himself. Such information may include not only such basic items as name, age or gender, but also past and current online behaviour, including consumption habits, social connections and so on. Technology enables online businesses to construct detailed profiles of each user, not just on the basis of information derived from their own websites but also from a user’s general online activities, including his non-commercial, hedonic or professional use of the internet. User profiles are compiled from multiple data sources to create a database of ‘intentions, desires and preferences’.37 Access to such profiles translates into the capacity to influence internet users and to direct their actions towards outcomes beneficial to the business.38 Pariser emphasises that ‘knowing what kinds of appeals specific people respond to gives you power to manipulate them on an individual basis’.39 User information is, however, leveraged not only to detect consumption preferences but also certain states, of both a permanent and temporary nature. Some of those states resemble the aforementioned ‘dispositions’, such as depression-prone and addictive personalities. Logically, internet companies are not responsible for their existence. They are, however, capable of discovering these states or dispositions and translating them into ‘vulnerabilities’. Offline, the user’s state would have been

36

Wendel (n 32) 256. I Rubinstein et al, ‘Data Mining And Internet Profiling: Emerging Regulatory And Technological Approaches’ (2008) 75 University of Chicago Law Review 261, 272. 38 N Richards and J King, ‘Three Paradoxes of Big Data’ (2013) 66 Stanford Law Review Online 41, 42–43; N Richards, ‘The Dangers of Surveillance’ (2013) 126 Harvard Law Review 1934, 1955; J Lanier, Who Owns the Future? (London, Penguin, 2013) 56. 39 E Pariser, The Filter Bubble: What the Internet is Hiding From You (London, Penguin Press, 2011) 121. 37

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observable only in the most obvious instances or by the most perceptive of sales persons. In a traditional setting, an intimate knowledge of a consumer, including his vulnerabilities, derives from a long-standing relationship that the business may be reluctant to jeopardise. Moreover, when a human sales person detects a vulnerability, she may decide to sympathise and to actually assist the customer—to the point of discouraging him from the transaction. Online, such knowledge is based exclusively on access to large amounts of personal information and sheer computing power. The detection of vulnerabilities may raise serious privacy concerns—especially if datasets are analysed with the specific aim of discovering vulnerabilities. What seems most objectionable, however, is the commercial exploitation of such knowledge. It seems inherently unfair to take advantage of the fact that somebody is more likely to succumb to ‘special offers’ due to the fact that his rationality or decision-making ability was compromised by grief or derives from an addictive personality. It has been observed that technologies leveraging personal information largely obliterate the distinction between ordinary and vulnerable users.40 Each internet user becomes vulnerable in its own way. It is thus important to remember that user profiles are not limited to such traditional attributes as age, income or spending habits but include the user’s weaknesses. Consequently, it appears largely irrelevant whether personal information permits the identification of a specific individual by name. What matters is uniqueness in terms of preferences and predispositions. Leaving aside the fact that it may be relatively easy to de-anonymise aggregated user information, actual identification seems important only in the context of payment obligations. As indicated, most internet businesses deal in user information, and do not get paid by the user. The uniqueness of the latter (in terms of individual attributes) is more important than his name.

VI. Personalisation The conceptual bridge that spans persuasive technologies, autonomy and privacy is ‘personalisation’, that is the tailored, user-specific display of information. Personalisation increases the effectiveness of persuasive technologies as it enables the selection or adaptation of a persuasion strategy in terms of content and presentation, to specific users.41 Personalisation would not, in turn, be possible without the ability to collect and process personal information. The most important aspects of personalisation are explored below, starting from the most obvious: behavioural advertising.

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Calo (n 14) 999. B Shlomo et al, ‘Influencing Individually: Fusing Personalisation and Persuasion’ (2012) 2 ACM Transactions on Interactive Intelligent Systems, 2, Art 9; M Kaptein and D Eckles, ‘Selecting Effective Means to Any End: Futures and Ethics of Persuasion Profiling’ in T Ploug et al (eds), Persuasive Technology, Lecture Notes in Computer Science (Berlin, Springer, 2010) 82. 41

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A. Behavioural Advertising The most overt (and hence well-known) persuasive technology that relies on personalisation techniques is advertising and, in particular, online behavioural advertising. The latter concept is understood as the practice of selecting advertisements—or entire advertising campaigns—on the basis of a user’s prior online behaviour. Traditional advertising is characterised by limited effectiveness, which is attributable to its reliance on crude demographic differentiations, such as gender, age or income. In contrast, online advertising caters to the heterogeneity of the audience, targeting individuals on the basis of their idiosyncratic attributes.42 Content is adjusted to address fine-grained, ad hoc segments, specific individuals or even ‘transient intra-individual variations’, caused by differences in personal situation or physiology.43 In the latter instance, advertisements can be tailored to the various states an internet user experiences during the day. The pervasive use of mobile phones enables internet companies to observe users throughout their daily activities. Behavioural advertising relies on two discrete technological capabilities: to identify users with specific characteristics and to dynamically adapt the content (including the manner of its presentation) to such users.44 Moreover, a person’s individual susceptibility to different persuasion strategies can be monitored in real-time so that he can be addressed (that is targeted) more effectively during the same online session, in later sessions and on different websites.45 Alternatively, internet companies may not adjust their persuasion strategy to a specific user, but find a user who is most likely to respond to a particular strategy.46 While behavioural advertising may create discomfort or annoyance if it promotes products that users do not want to see, it is still ‘only’ advertising. It hardly poses a threat to the autonomy of internet users and, intrusiveness aside, its privacy implications are relatively benign. Once content is identified as advertising, the average person displays some form of psychological resistance.47 We are, after all, trained from early childhood to ignore and allow for the commercial persuasion commonly exerted by intrusive marketers or friendly sales assistants. The persuasive influence of advertising is thus generally limited by its easy detection. Internet users are generally capable of detecting information bias and persuasive efforts in online advertisements. Problems arise, however, when persuasion strategies become embedded into content and services, when it is difficult to detect information bias or commercial manipulation.48

B. ‘Optimisation’ and ‘Relevance’ A greater threat to autonomy is posed by those technologies that operate in an imperceptible manner. Personalisation techniques are common not only in advertising but also, 42 M Kaptein and D Eckles, ‘Heterogenity in the Effects of Online Persuasion’ (2012) 26 Journal of Interactive Marketing 176–88, 186; D Berger, ‘Balancing Consumer Privacy with Behavioral Targeting’ (2011) 27 Santa Clara Computer & High Technology Law Journal 3, 4. 43 Kaptain and Eckles (n 42) 183. 44 J Hauser et al, ‘Website Morphing’ (2009) 28 Marketing Science 2, 202. 45 Kaptain and Eckles (n 42) 186. 46 B Deshpande, Predictive Analytics and Data Mining (Sebastopol, O’Reilly, 2014). 47 P Menell, ‘Brand Totalitarianism’ (2014) 47 University of California Davis Law Review 787, 790. 48 ibid 787.

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amongst others, in recommender systems, search engines and shopping assistants. Different users may be presented with different content, including search results, despite having entered the same search term or requested the same information.49 The extreme effect of personalisation is that each user sees a customised view of the marketplace, a different range of choices and prices.50 Personalisation is usually justified in terms of ‘optimising content’ or ‘increasing relevance’.51 Internet companies explain that the average person is incapable of evaluating all the information available on the internet due to time constraints and, more importantly, limited processing capabilities. Too many choices or an un-moderated access to information may decrease the quality of decision-making due to cognitive overload.52 Some content moderation, or pre-selection, would therefore seem advantageous. The line between facilitating and reducing or manipulating choice may, however, be difficult to draw. The problem lies in who decides which content is ‘optimal’ or ‘relevant’ and how content is pre-selected. With few exceptions, content is personalised by and for the benefit of internet companies. Personalised content entices consumers into specific transactions; it does not serve to enable them to pursue their individual interests. References to ‘optimisation’ or ‘relevance’ are misleading as they imply that they are undertaken for the user’s benefit and that internet companies actually know or care about his preferences. It must not be forgotten that the latter are inferred from previously collected data—not from the user’s deliberate instructions. Personalisation is closely tied to predictive analytics, technologies that learn from observed experience (for example, information about online activities) to predict future behaviour or, to be more precise, the likelihood of a particular user being influenced by a specific persuasion strategy.53 Predictive analytics utilise large data sets (‘Big Data’) acquired from the online activity of a particular user, ‘similar’ users and statistical data pertaining to particular products. The popular fascination with ‘Big Data’ overshadows a number of problems. First, the data is often of questionable quality in terms of currency, relevance and provenance. Second, predictive analytics establish correlations not causal relationships. Personalisation relies on the statistical likelihood of two events occurring together—not on attempts to deduce actual customer preferences. Causation is, in fact, treated with some disdain. Why continue the quest for elusive causality if we can rely on statistical correlations?54 It is rarely acknowledged, however, that larger data sets increase the risk of false correlations. There is also no guarantee that the algorithm used to analyse the data will correctly infer user preferences, make the optimal recommendations or display the most relevant content.55 After all, it does not and cannot ‘know’ the user’s present and long-term interests or preferences.56 Determining the true, actual preferences of a user would require that predictive analytics were capable of establishing causal relationships.

49 Pariser (n 39); J Turow, The Daily You: How the New Advertising Industry Is Defining Your Identity and Your Worth (Yale, Yale University Press, 2011) 88. On search engine bias, see O Bracha and F Pasquale, ‘Federal Search Commission? Access, Fairness, and Accountability in the Law of Search’ (2008) 93 Cornell Law Review 1149. 50 F Pasquale, The Black Box Society (Cambridge MA, Harvard University Press, 2015) 80. 51 E Goldman, ‘A Coasean Analysis of Marketing’ (2006) Wisconsin Law Review 1151. 52 S Botti and S Iyengar, ‘The Dark Side of Choice: When Choice Impairs Social Welfare’ (2006) 25 Journal of Public Policy & Marketing 24. 53 E Siegel, Prediction Effect: How Predictive Analytics Revolutionizes the Business World (Hoboken NJ, John Wiley & Sons, 2013) 11, 200. 54 V Meyer-Schonberger and K Cukier, Big Data (London, John Murray, 2013) 19. 55 For a critique of those systems, see K Miller, ‘Total Surveillance, Big Data, And Predictive Crime Technology: Privacy’s Perfect Storm’ (2014) 19 Journal of Technology Law & Policy 105. 56 Brownsword (n 11) 70.

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Unfortunately, false correlations based on inaccurate data may still result in a transaction if the user follows a given recommendation. In effect, users who indiscriminately rely on personalised content may acquire suboptimal or obviously wrong products.57 By way of recollection, personalisation need not be limited to a pre-selection or recommendation of songs on Spotify, or books on Amazon, but may relate to more significant choices, such as loans or mortgages. It has also been established that user profiling often occurs for the sole purpose of exploiting financial illiteracy.58 In many instances, personal information is not used to facilitate decision-making but to increase the likelihood of a transaction or to determine the maximum price that can be charged.59 Unsurprisingly, personalisation is often associated with price steering and price discrimination.60 In the former instance, users are nudged towards more expensive items; in the latter, different consumers are presented with different prices for the same product.61 The point is not that such practices are illegal, but that personalisation technologies operate to the user’s disadvantage. Even if an internet company could recommend the optimal product or content—would it? Or, would it recommend one that carries the highest profit margin or generates the highest advertising revenue? In sum, the loss of autonomy does not only have an ethical or moral aspect but may carry important financial implications.

C. Information ‘Reductionism’ On a broader level, personalisation may lead to a reduction of options resulting from a gradual limitation of access to information. As some information is prioritised and other becomes more difficult to find, customers are less likely to learn about the existence of alternatives. We can speak of a form of ‘commercial censorship.’ The information that is not displayed is not blocked or removed, but technically deprioritised. The ‘hidden’ information (speak: ‘products or services’) remains available but unless the consumer specifically knows what he is looking for, it may be difficult to find. On a practical level, the consumer may be precluded from finding the best price or the product that best satisfies his preferences. On a theoretical level, his autonomy is limited as he is not given the opportunity to choose from—or become aware of—the full range of available options.62 To clarify, it is not claimed that more choices are necessarily better for decision-making. It is claimed, however, that the mere awareness of the full range of choices may affect the manner in which choices are made, even if a consumer does not intend to evaluate each available alternative.

57 P Ohm, ‘The Underwhelming Benefits of Big Data’ (2013) 161 University of Pennsylvania Law Review Online 339. 58 See N Newman, ‘Search, Antitrust and the Economics of the Control of User Data’ (2014) 31 Yale Journal on Regulation 401, who describes the profiling of internet users to detect financial ignorance and exploit such, 444–45. 59 O Tene and J Polonetsky, ‘Big Data For All: Privacy And User Control In The Age Of Analytics’ (2013) 11 Northwestern Journal Technology & Intellectual Property 239, 244. 60 A Hannak et al, ‘Measuring Price Discrimination and Steering on E-commerce Web Sites’ (2014) ACM 978-1-4503-3213-2/14/11. 61 For a detailed description of online discriminatory practices, see T Zarsky, ‘“Mine your own Business!” Making the Case for the Implications of the Data Mining of Personal Information in the Forum of Public Opinion’ (2002–03) 2 Yale Journal of Law & Technology 55, 19–22. 62 C Hoofnagle et al, ‘Behavioral Advertising: The Offer you can’t Refuse’ (2012) 6 Harvard Law & Policy Review 273.

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It is one thing to decide not to explore all possibilities, it is another not to know that many possibilities exist. Writing as early as 2002, when the technological capabilities of internet companies were less developed, the problem was recognised by Zarsky, who associated the customisation of information with the restriction of choice and the loss of autonomy.63 He referred to the ‘autonomy trap’,64 the vicious circle that forms when users ‘provide’ their information and in return internet companies customise information to the user’s perceived preferences. The information displayed to the user is chosen on the basis of the information collected from the user. The resulting progressive narrowing of options may ‘push individuals towards certain products or services in which they initially were not interested’.65 Online choices become increasingly constrained by prior choices. In a similar vein, Pariser observed that ‘Personalization algorithms can cause identity loops, in which what the code knows about you constructs your media environment, and your media environment helps to shape your future preferences.’66 The problem does not lie in being ‘coerced’ to buy product X instead of product Y, but in the gradual loss of the ability to develop individual preferences and the increasing difficulty in becoming aware of the range of existing choices. The foregoing statement seems absurd in light of the popular assumption that the internet democratises information and provides a perfect information environment. Yet, as emphasised by Hildebrandt, once technology enables the detection and subsequent, gradual creation of our personal preferences, the danger is that decisions are made not by us but ‘for us.’67 In sum, although many aspects of personalisation are promoted as solutions to the problem of information overflow, any technological process designed to ‘optimise’ content, ‘increase its relevance’ or ‘reduce search costs’ is aimed at promoting the commercial interests of internet companies. It must also be remembered that technologies will become more persuasive and more pervasive, especially in light of the introduction of the internetof-things, that is the embedding of networked sensors in everyday physical objects for the purpose of collecting data about their users. There will be more information and more efficient techniques of analysing such information. It must, however, be anticipated that all progress in this area will exclusively benefit internet companies and result in more discrimination, more exploitation and more information asymmetries.

VII. Some Piecemeal Solutions The persuasive effect of many technologies would be diminished if less personal information could be collected and/or if certain forms of processing or utilising personal information were prohibited. We must, however, recognise that an unqualified prohibition on the collection or processing of personal information would effectively annihilate entire business models relying on advertising and, on a broader level, significantly affect many positive

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Zarsky (n 61) 3. P Schwartz, ‘Internet Privacy and the State’ (2000) 32 Connecticut Law Review 815, 823. 65 Zarsky (n 61) 43. 66 Pariser (n 39) 233. 67 Hildebrandt (n 1) 61. 64

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uses of the web. It is also unlikely that a single legal solution would be capable of reversing the general trend of collecting increasing amounts of user data. Rather than relying on a single instrument that prohibits the collection and/or processing of personal information, a more nuanced approach is required, one that can be adjusted to specific contexts and one that addresses the problem of online persuasion from multiple angles. Below, I discuss some possible approaches to the problems introduced by persuasive technologies. I assume that potential solutions need not necessarily lie in strengthening privacy protections but may be ‘scattered’ over multiple areas that involve commercial practices relying on such technologies. The point of departure is a critique of the traditional approach to the problem: disclosure and control.

A. Disclosure and Control Intuitively, we assume that endowing internet users with more information about and control over the online technologies they utilise on a daily basis would alleviate many of the problems described above.68 As indicated, knowing that one’s behaviour is being influenced decreases the impact of such influence. Moreover, understanding how a particular technology functions enables an evaluation of the implications and risks of its use.69 Most internet users indiscriminately visit websites, download content and use online services such as search engines or recommender systems without having a rudimentary understanding of their operation. If such minimal comprehension was present, internet users would understand the scale of the collection and processing of their information, including the indispensability and, hence, commercial value of such information. They would also appreciate the bias inherent in the operation of the aforementioned technologies and, accordingly, place less reliance on the recommendations made thereby or approach the presented content with more caution. It can be suspected that, as a result, the technologies in question would become less effective and thus less profitable. Users would also gain the ability to weigh their options: ‘Should I be using this service in the first place?’ and ‘Am I willing to relinquish control over my personal information in return for the ability to read this content?’ Technically, user comprehension would need to encompass at least two separate issues. First, it would relate to the very operation of a particular service, such as search engines or shopping agents. Secondly, it would relate to the manner in which the particular service collects and utilises the information ‘provided’ by the user. While it is widely acknowledged that the ability to collect personal information is largely attributable to user ignorance, both with regards to the value of such information and to the purpose of collection,70 the picture

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Friedman and Nissenbaum (n 15) 467. De Mul and van den Berg (n 18) 53. generally, J Whittington and C Hoofnagle, ‘Unpacking Privacy’s Price’ (2012) 90 North Carolina Law Review 1328, 1357; for a detailed explanation of why consumers undervalue personal information and underestimate the risks of information sharing, see A Acquisti and J Grossklags, ‘What Can Behavioral Economics Teach Us About Privacy?’ in A Acquisiti et al (eds), Digital Privacy: Theory, Technologies and Practices (Boca Ration, Auerbach Publications, 2008) 363. 69

70 See

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is more complex. Providing information about the functioning of a particular technology or about the fact or purpose of collecting personal information involves, by definition, the imposition of disclosure requirements. Most regulations relying on disclosure assume that people, given the opportunity to inform themselves, will take this opportunity and make better decisions.71 Such an assumption is incorrect—especially in the internet context. It seems counterintuitive to provide users with more information in an environment that already abounds with information and hence further contribute to their information overload.72 The limitations of disclosure have been amply documented, especially with regards to the failure of privacy policies to communicate how personal information will be used.73 We must also mention the unacceptable increase in transaction costs that would follow if users actually read them.74 Another problem concerns the fact that disclosures may be as difficult to understand as the technology itself.75 Reading a privacy policy or a technical description of a particular online service may confuse, rather than enlighten the average internet user. When it comes to control, even if some features of an online service can be controlled in the user settings,76 such customisations presume a pre-existing awareness of the problems inherent in its operation as well as a minimal level of IT literacy. Less technically inclined users will not benefit from greater levels of control. Control requires competence. As a consequence, most users will retain the default settings predetermined by the internet company. The latter will, however, be able to claim that it provides users with control over their data. To aggravate matters, it has been established that the provision of more control over personal information may create a false sense of security and lead users to take more risks with their information.77 In sum, while it cannot be denied that disclosure and control can theoretically minimise the persuasive influence of many technologies, the practical limitations of both approaches must be appreciated.

B. A Contractual Approach The problems inherent in the operation of persuasive technologies can also be approached from a contractual perspective. After all, the internet economy relies first and foremost on

71 L Waddington, ‘Vulnerable and confused: the protection of “vulnerable” consumers under EU law’ (2013) 38 European Law Review 757, 776. 72 See generally, O Ben-Shahar, More Than you Wanted to Know: the Failure of Mandated Disclosure (Princeton NJ, Princeton University Press, 2014). 73 C Jense and C Potts, ‘Privacy policies as decision-making tools: an evaluation of on-line privacy notices’ (2004) Proceedings of the SIGCHI conference on Human factors in computing systems 471. 74 A McDonald and L Cranor, ‘The Cost of Reading Privacy Policies’ (2008) 4 Journal of Law and Policy for the Information Society 540. 75 E Rubin, ‘The Internet, Consumer Protection And Practical Knowledge’, in J Winn (ed), Consumer Protection In The Age Of The ‘Information Economy’ (Farnham, Ashgate, 2006) 35, 39; see also: B Miller et al, ‘A Systematic Analysis And Evaluation Of Web Privacy Policies And Implementations’ (2012) Proceedings of the 7th International Conference for Internet Technology and Secure Transactions 534. 76 Amazon allows users to adjust their ‘Advertising Preferences’, at www.amazon.co.uk/gp/help/customer/ display.html/ref=footer_privacy?ie=UTF8&nodeId=502584. 77 L Brandimarte et al, ‘Misplaced Confidences Privacy and the Control Paradox’ (2013) 4 Social Psychological and Personality Science 340.

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exchanges of personal information in return for access to online resources. The complicating factor lies in the fact that, theoretically, we must analyse two discrete transactions. In many traditional e-commerce contracts, it can be claimed that the particular item was bought due to the use of persuasive technologies. To be more precise: a particular selection was made because the internet company made a specific recommendation or presented a range of available options in a manner that increased the likelihood of one item being selected rather than another. We must therefore also look at the transaction that enabled the use of persuasive technologies in the first place—the exchange of personal information for online content or services. In the latter instance, we observe an overlap between privacy regulations and certain principles of contract law.

(i) Relief from the Transaction? Persuasive technologies are used to steer users towards specific transactions that result in prima facie enforceable agreements. Objectively, the contract appears to be valid. Yet, the process leading to its conclusion challenges many assumptions underpinning traditional contract formation. Even a cursory review of contract law literature reveals a persistent emphasis on self-determination and autonomy. If one party is actively prevented by the other from acting autonomously, it seems reasonable to expect that the resulting ‘contract’ cannot stand. At the same time, however, contract law is generally regarded as a framework for individuals to achieve their private ends. Contract law is thus permeated with a tension between the right to pursue one’s interests and the need to respect the autonomy of others. Persuasive technologies seem to introduce an additional dimension into the above tension. Although it is difficult to clearly delineate the permissible limits of exercising one’s autonomy or establish where such exercise starts to affect, or limit, the autonomy of others, it must be assumed that any ‘transgressions’ are more likely to occur when transactional imbalances are present. Such transactional imbalances would normally relate to information asymmetries or differences in access to economic resources. Contract law approaches problems of such imbalances from the perspective of defective consent. Although neither subjective nor informed consent are prerequisites of a contract, its absence may entitle the aggrieved party to various forms of relief, including the rescission of the transaction. Arguably, at least some uses of persuasive technologies would call for the availability of such relief. It is, however, extremely difficult to identify the permissible degrees of persuasion, or transactional exploitation, in contract law. There is no single legal doctrine that addresses transactional fairness or that protects the autonomy of the transacting parties.78 The main, overriding principle is that the statements of the parties are evaluated objectively and that a contract is formed if both parties appear to have agreed.79 The objective theory of contract protects the reliance of those to whom the words and behaviour are directed and overrides any subjective defects in contractual intention. Commercial certainty generally trumps individual autonomy.

78 See Denning MR in Lloyd’s Bank Ltd v Bundy [1975] QB 326, 339, laid to rest by Lord Scarman in National Westminster Bank Plc v Morgan [1985] 1 AC 686, 708. 79 As per Lord Diplock in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854, 915.

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There are, however, a closed number of exceptions to the objective principle, popularly referred to as ‘vitiating factors’. The latter can be regarded as setting the limits on the permissible pursuit of self-interest in contract law.80 The doctrines of duress, misrepresentation, unilateral mistake, undue influence and unconscionable dealings address distortions of transaction-related information or legally objectionable influences. Some of these doctrines focus on information deficiencies, others on the circumstances in which a decision was formulated or consent to the transaction was given. It is interesting to observe that contract law does not clearly differentiate between informed and free consent.81 It does, however, recognise that some defects in the formation process do not concern information asymmetries but more complex, cognitive or emotional factors that affect the mental origin of a decision.82 In particular, the doctrines of duress and undue influence are often regarded as protecting the ability of ‘autonomous beings’ to ‘make choices for him or herself without unjustifiable interference from others’.83 Unfortunately, each vitiating factor has developed independently, deals with a different aspect of transactional unfairness and, given that each is treated as an exception to the broader principle of objectivity, has its own narrowly formulated criteria of application. To repeat, there is one single, overriding principle of objectivity that protects the certainty of commercial dealings. There is, however, no single underlying principle that protects the autonomy of the contracting parties. Autonomy—or the quality of contractual consent—is ‘protected’ by exceptions to the principle of objectivity. And exceptions are always difficult to apply, and to extend. In practice, vitiating factors are of limited assistance for multiple reasons. The number of intermediaries involved in an online transaction and the resulting multiplicity of influences creates difficulties in establishing the specific technology, or internet company, that exerted the most significant form of persuasion. Once a contract is formed, relief can be sought against the other party to the transaction, placing other intermediaries—even if they caused the decision—outside the purview of contract law. It is also difficult to prove causation; that one single technology has persuaded the user to enter into a particular exchange, that if it were not for the persuasive attempt, he would have entered into a different transaction or abandoned his transactional intent altogether. It must not be forgotten that multiple influences may be present at the same time. Causation aside, as the user’s internal state of mind and hence the actual persuasive effect of a technology are impossible to establish, the focus must be on the external indicia of persuasion. We can only analyse the substance of the transaction and/or the process that produced it. As it is generally assumed that a fair contracting process will lead to fair results,84 the substance of a transaction may raise suspicions about the process. In principle, however, substantive unfairness of the resulting transaction need not be a prerequisite of intervention, although relief is generally sought only when such unfairness is present. Extortionate ‘bargains’ aside, substantive unfairness may be difficult to establish given that contract

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R Bigwood, Exploitative Contracts (Oxford, Oxford University Press, 2003) 92. Chen-Wishart, ‘The Nature of Vitiating Factors in Contract Law’ in G Klass et al (eds), Philosophical Foundations of Contract Law (Oxford, Oxford University Press, 2014) 296. 82 P Atiyah, ‘Contract and Fair Exchange’ (1985) 35 University of Toronto Law Journal 1, 15. 83 Perre v Apand Pty Ltd (1999) 164 ALR 606, 635 (McHugh J). 84 Bigwood (n 80) 182, citing Pao On v Lau Yiu Long [1980] AC 614, 634. 81 M

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law relies on a purely subjective understanding of value. Equivalence of exchange is not required. Courts do not evaluate consideration in terms of adequacy but only in terms of sufficiency.85 The problem lies not only in the difficulty of establishing what would have constituted the best choice for a user, but also in estimating the value of his personal information in those instances where such information constitutes the object of exchange. How can it be determined that the user received fair value in return for the right to collect his information? In most instances, the problem lies in the very conclusion of a transaction, not in its substance. Unfortunately, it is equally problematic to establish procedural unfairness.86 The traditional transacting process is far from ideal. Most contracts are formed in suboptimal conditions characterised by imbalances in power and information. Contract law does not invalidate transactions on the ground that one party enjoys a bargaining advantage. The contracting process is inherently adversarial and antagonistic.87 Contract law also implicitly permits a certain level of advantage-taking, including some deception or pressure. An abuse of influence and a deliberate suppression of information in a decision-making context need not always result in the reversal of a transaction. We must also recall the tension that exists between what is observable, for example, illegitimate pressure, undue influence, a false statement of fact or a ‘transaction that calls for explanation’ and what remains hidden, that is the actual effect that such practices or statements have on the state of mind of the aggrieved party. There are always two sides to every scenario purportedly involving a vitiating factor. In the case of misrepresentation we require not only the presence of inducement but also actual reliance. In the case of economic duress or undue influence we analyse not only the actions of the purported wrongdoer but also their influence on the decisionmaking process of the other party. In online transactions, however, even external manifestations of persuasion or ‘technological equivalents’ of undue influence or economic coercion may be difficult to detect. Persuasive technologies operate in the background and remain imperceptible to the average user. At the same time, while there may be no relationships of trust and confidence between internet companies and internet users, there are relationships of dependence for information—and dependence seems as prone to abuse as influence. It is also worth emphasising that contract law does not impose a duty of disclosure, and largely tolerates bargaining advantages based on superior negotiation skills or access to better information—especially if they are attributable to a party’s investment of resources to acquire such information. Certain forms of misinformation seem to be regarded as bargaining tactics, which are expected to be countered with similar techniques and/or with an awareness that what is communicated may be incomplete or incorrect.88 While each party is allowed and expected to engage in its own bargaining strategy, it is also assumed that each party can recognise and, at least to some extent, counter the strategy of the other. Most internet users are, however, unable to recognise such ‘tactics’ and act under the false assumption that there are none. The average person can hardly be expected to understand that the search results displayed to her are arranged in a sequence that increases the likelihood

85

Chappel & Co Ltd v Nestle Co Ltd [1960] AC 87. See generally Atiyah (n 82), 19. 87 Walford v Miles [1992] 2 AC 128, 138. 88 Bigwood (n 80) 49. 86

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of click-through, that a particular graphical layout was selected to induce her to proceed within the website or that his personal information was mined to detect his predilections. Neither can she be expected to counter the persuasive efforts of internet companies. Despite these transactional imbalances, it must be assumed that vitiating factors will be of limited assistance in most scenarios involving persuasive technologies.

(ii) Privacy Policies as Contracts? Despite the foregoing, contract law may have another role to play in the privacy debate. In most circumstances, regulatory instruments permit the collection and processing of personal information on condition that internet users (or ‘data subjects’) are informed about and consent to such practices.89 The implementation of such disclosure and consent requirements often takes the form of privacy policies, which are presented alongside and frequently incorporated by reference into the terms of use governing access to websites. In effect, the statutory prerequisites of data collection and processing ‘morph’ into purported agreements between internet companies and internet users. The problem lies in the fact that the prescribed notification and consent requirements frequently ‘mimick’ those found in contract law. We must ask: Should privacy policies be evaluated as contracts or should the statutory consent and notification requirements place such documents outside of the traditional contractual regime? While the answer to this question requires nothing short of a separate thesis, it appears that in practice, privacy policies form part of the ‘package of agreements’ governing the use of websites and are treated as contractual documents. This is largely attributable to the fact that the United States, where virtually all significant internet companies originate, has few legislative instruments aimed at privacy protection and, consequently, personal information is collected and processed almost exclusively on the basis of privacy policies. Unfortunately, a strict adherence to the principles of contract law in evaluating disclosure and consent requirements may deprive legislative privacy protections of their intended force and effect. The difficulty is that contract law largely tolerates fictional consent to protect the certainty of commercial dealings. It does not, as a matter of principle, prescribe the manner of manifesting intention or expressing agreement.90 Consent can take any form, it need not be express and can be implied from almost any behaviour. Thus, while consent cannot be inferred from silence or inactivity, proceeding within a website or continuing to use an online service are not inactivity. Such actions can be regarded, at least from the perspective of contract law, as valid expressions of consent. In addition, contract law does not require that the terms of a contract be read, the only prerequisite of their enforceability is that they be made available. Consequently, an adherence to the principles of contract law enables internet companies to obtain consent from unwitting internet users, who may not realise unless they read the terms of use accompanying the website that continued browsing will constitute consent to such terms and to the privacy policy. It should not surprise that most commercial websites

89 See, eg, OECD, Guidelines on the Protection of Privacy and Transborder Flows of Personal Data, Part Two; UK Data Protection Act 1988, Schs 2 and 3. 90 Chitty on Contract, 31st edn (London, Sweet & Maxwell 2013) para 2-163.

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are designed to provide the minimum required disclosure and to obtain user consent in the least intrusive manner. The same design techniques, including empirical testing, that are used to attract the attention of the user to specific graphical elements and pre-empt his online behaviour can also be used to discourage him from clicking certain links or noticing certain elements—such as links to the terms of the transaction or the privacy policy itself. In this way, the legal prerequisites of data collection and processing are met, at least theoretically, while, at the same time, the design of the website minimises the likelihood of users actually reading privacy policies and consenting to them in a meaningful way. The problem of fictitious consent is expressly recognised in the scholarship that developed around standard form contracts.91 An additional problem concerns the question: how competent does one have to be for his consent to be regarded as genuine and informed given the complexity of contract terms and the products or services they relate to?92 In other words, apart from understanding that one is consenting to terms, one should also understand what those terms mean and what effects such consent will produce. While both problems are acknowledged, standard form contracts are generally enforced. The consenting party need not know what he is consenting to (as long as he was provided with the opportunity to read the terms) and need not understand the implications of his consent, be they legal or commercial. Needless to say, the transposition of such ‘minimal consent’ requirements into the area of privacy protection must be regarded as unfortunate. In light of the foregoing, it is unsurprising that recent regulatory proposals aimed at enhancing privacy protections in the European Union prescribe that internet users provide express consent or that consent involve ‘a clear affirmative action’ indicating that ‘individuals are aware that they give their consent to the processing of personal data’.93 Additionally, the consent must be ‘freely given and informed’, with the burden of proof that such consent was obtained placed, by default, on the internet business. Clearly, such definition positions consent requirements outside the scope of traditional contract law. As an aside it can be observed that the Directive on Consumer Rights,94 which is designed as the main consumer protection instrument in the context of online contracting, imposes numerous informational obligations on internet companies. It does not, however, extend such informational obligations to situations where payment for the access and use of online resources consists of the permission to collect and utilise personal information. Article 8 of the Directive states that internet companies must ensure that when a user places an order, he explicitly acknowledges that the order implies an obligation to pay.95 In particular, if placing an order

91 M Radin, Boilerplate, The Fine Print, Vanishing Rights, and the Rule of Law (Princeton NJ, Princeton University Press, 2013). 92 P Burrows, ‘Contract Discipline: In Search of Principles in the Control of Contracting Power’ (1995) 2 European Journal of Law & Economics 127, 141. 93 Proposal for a Regulation of the European Parliament and of the Council on the protection of individuals with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation) Brussels, 25.1.2012 COM(2012) 11 final, see: recital 25 and Art 2(8) for definition of ‘the data subject’s consent’. 94 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights. 95 See also recital 39 which emphasises that ‘it is important to ensure that … the consumer is able to determine the moment at which he assumes the obligation to pay the trader. Therefore, the consumer’s attention should specifically be drawn, through an unambiguous formulation, to the fact that placing the order entails the obligation to pay the trader.’

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involves the activation of a button (or similar technique) ‘the button or similar function shall be labelled in an easily legible manner only with the words “order with obligation to pay” or a corresponding unambiguous formulation indicating that placing the order entails an obligation to pay.’96 Unfortunately, the clear warning that an exchange is taking place extends only to those transactions that involve monetary remuneration. It ignores the main business model of the web and the indisputable value of personal information. The evaluation of privacy policies from a contractual perspective may, however, have some unexpected advantages. Privacy regulations generally prescribe that online businesses disclose not just the fact of collecting user information but also the purposes of such collection.97 This is commonly referred to as the transparency principle. As indicated, providing internet users with more information need not necessarily have the desired effect of enabling them to make better decisions or to provide informed consent. At the same time, it can be observed that the majority of privacy policies are relatively vague in explaining how and for what purposes user information is processed. Even internet giants like Facebook or Google limit themselves to general statements to the effect of ‘we will utilise your personal information to provide you with better services.’98 It could be claimed that such level of generality is insufficient to fulfil the prerequisites of data processing imposed by privacy regulations. It can hardly be assumed that informing the user that his information is being processed ‘to provide a better service’ meets the original objective of such regulations. Even without extensive empirical research, it can be assumed that no online business discloses its actual technical capabilities and purposes of information processing or explains such concepts as ‘personalisation’ or ‘data mining’. More importantly, as information is collected and stored for future processing, for purposes that at the time of collection may not be known, many privacy policies are intentionally vague. A review of Google’s privacy disclosures reveals that an understanding the implications of the technologies described therein requires, or presumes, a certain level of familiarity with basic concepts of data science. Leaving aside the question whether such vague descriptions are adequate to meet regulatory prerequisites, it must be pointed out that contract law requires ‘certainty and completeness.’ For a contract to be enforceable, the respective rights and obligations of the parties must be described in sufficient detail.99 If a key obligation or right is not described in a manner that permits its enforceability, it can be claimed that (a) no contract came into existence, or (b) the contract cannot be enforced. After all, the certainty and completeness of a statement, such as an offer, are commonly regarded as evincing an intention to be bound. If a statement is imprecise, it is not meant to be binding or it cannot be enforced. Of course, in many circumstances, imprecise provisions can be upheld by the principles

96 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, Art 8. 97 See eg Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, Art 7. 98 See, eg, the very vague description provided by Facebook at www.facebook.com/privacy/explanation; Google’s privacy policy is more comprehensive but does not explain the full implications of the collection and processing of user data, see: https://static.googleusercontent.com/media/www.google.com/en//intl/en/policies/ privacy/google_privacy_policy_en.pdf and www.google.com/policies/privacy/example/collect-information.html. 99 May and Butcher Ltd v R (1929) [1934] 2 KB 17; Barbudev v Eurocom Cable Management Bulgaria EOOD [2012] EWCA Civ 548; MRI Trading AG v Erdenet Mining Corpn LLC [2013] EWCA Civ 156.

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of contractual interpretation, including the implication of terms. It would, unquestionably, be interesting to observe how courts interpret the scope of the right to process personal information given the vagueness of most privacy policies on one hand and the actual scope and purpose of processing on the other. Without indulging in lengthy discussions of contract law, we must acknowledge that the lack of precision or the minimalistic nature of the provisions describing the purpose of data processing leads to a situation where privacy policies can be attacked from both a regulatory and a contractual angle. It is reasonable to assume that irrespective of the manner of expressing consent, internet users must know what they are consenting to. In this sense, regulations that prescribe that consent be express should also prescribe a greater level of detail with regards to the purpose of processing that users purportedly consent to.

C. Redefining ‘Vulnerability’ and the ‘Average Consumer’ Privacy protections aside, the problem of persuasive technology can also be approached from a different angle: that of the actual commercial practices enabled by those technologies. As indicated, internet companies are capable of detecting idiosyncratic biases and dispositions on the part of internet users. Such ‘detection’ seems difficult to address—or prevent— exclusively with enhanced disclosure or consent requirements. An alternative approach can be tested on the European Directive on Unfair Commercial Practices (UCPD),100 which, unlike other Directives concerning online transactions, does not focus on the provision of information alone,101 but seeks to enable consumers to make not only informed but also meaningful choices.102 The UCPD does not burden internet users with reading disclosure documents but directly prohibits internet companies from engaging in certain activities. Of particular interest in the present context is Article 5, which contains a general prohibition of unfair commercial practices, a prohibition that could, at least theoretically, affect some of the commercial practices involving persuasive technologies. A practice is unfair if it is contrary to the requirements of professional diligence, and materially distorts or is likely to materially distort the economic behaviour of the average consumer. ‘Professional diligence’ is associated with concepts like ‘honest market practice’ and ‘good faith’. Article 5 constitutes a general prohibition covering any unfair practice, which is not caught by other, more specific, provisions of the Directive. Its generality aims to ensure that the directive is ‘future-proof ’.103 A material distortion occurs when a practice impairs the consumer’s ability to make an informed decision, ‘causing the consumer to take a transactional decision

100 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market, adopted in the UK (almost verbatim) by the Consumer Protections from Unfair Trading Regulations 2008. 101 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights. 102 See generally, Report From The Commission To The European Parliament, The Council And The European Economic and Social Committee, Brussels, 14.3.2013 COM(2013) 139 final. 103 GB Abbamonte, ‘The Unfair Commercial Practices Directive and its General Prohibition’ in S Weatherill and U Bernitz (eds), The Regulation of Unfair Commercial Practices under EC Directive 2005/29 (Oxford, Hart Publishing, 2007) 21.

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that he would not have taken otherwise’.104 The term ‘transactional decision’ is interpreted broadly105 and covers decisions that do not lead to transactions or result in actions that have no legal consequences under national contract law.106 For example, a practice may be considered unfair if it is likely to cause the consumer to remain on a website or spend more time engaged in an online booking process.107 The problem of establishing causation is absent as the actual distortion of a consumer’s economic behaviour is not required. It suffices that a practice is capable of having such effect.108 Furthermore, the presence of a material distortion requires neither actual economic loss nor substantive unfairness.109 ‘Distortion’ concerns the impairment of the ability to make decisions.110 While the breadth of Article 5 appears capable of addressing even less extreme cases of technological persuasion, problems arise with regards to the assumptions underpinning the term ‘average consumer.’ The latter is deemed to be reasonably well informed, observant and circumspect,111 behaving ‘like a rational economic operator’ and making efficient choices.112 Consequently, the protections provided by Article 5 are largely annihilated by the unrealistic expectations concerning the information processing capabilities and rationality of internet users. It surprises that the ECJ emphasised that the concept of the ‘average consumer’ did not depend on statistical evidence of how consumers actually behave. In an era where most decisions are data-driven, it seems counterintuitive not to take advantage of empirical findings to establish actual consumer behaviour. Paradoxically, empirical evidence of consumer behaviour is utilised by internet companies but not by courts and regulators. The present understanding of the ‘average consumer’ not only ignores the manner in which users act in practice113 but also disregards the very findings in behavioural economics and cognitive science that internet companies rely on to influence online user behaviour. Article 5(3) prescribes specific protection of consumers who are particularly vulnerable due their mental or physical infirmity, age or credulity. The listed sources of vulnerability disregard the fact that ‘vulnerability’ can be a ‘dynamic state’ which affects consumers at different times and circumstances.114 Vulnerability derives from a multitude of causes, both ‘endogenous’ and ‘exogenous,’115 permanent and temporary. An adaptation

104

UCPD Art 2(e). UCPD Art 2(k). Commission Guidance on the Implementation/Application of Directive 2005/29/EC on Unfair Commercial Practices, (‘Guidance’) 23. 107 ibid 24. 108 ibid 24. 109 Abbamonte (n 103) 23. 110 UCPD Art 2 (e). 111 UCPD Recital 18. 112 Abbamonte (n 103) 24. 113 See, generally, R Incardona and C Poncibò, ‘The Average Consumer, the Unfair Commercial Practices Directive, and the Cognitive Revolution’ (2007) 30 Journal of Consumer Policy 21; J Stuyck, et al, ‘Confidence through Fairness? The New Directive on Unfair Business-to-consumer Commercial Practices in the Internal Market’ (2006) 43 Common Market Law Review 107; S Weatherill, ‘The Role Of The Informed Consumer In European Community Law And Policy’ (1994) 2 Consumer Law Journal 49. 114 L Waddington, ‘Vulnerable and confused: the protection of “vulnerable” consumers under EU law’ (2013) 38 European Law Review 757, 768. 115 Committee on the Internal Market and Consumer Protection, Report on a strategy for strengthening the rights of vulnerable consumers (2011/2272/(INI), May 8, 2012, A7-0155/2012). 105

106 European

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of Article 5 to actual market practice requires an acknowledgement that the ‘average’ consumer is far less knowledgeable and rational than assumed. It could also be claimed that the very concept of the ‘average consumer’ has become outdated or that even an ‘average consumer’ can be rendered ‘vulnerable.’ It must be also be acknowledged that each user is vulnerable in its own way and that vendors have the technological capacity to exploit temporary vulnerabilities—not just those caused by age, mental infirmity or credulity. In sum, the protections introduced in Article 5 are weakened by unrealistic expectations regarding the behaviour of internet users and by a failure to appreciate the technological capabilities of internet companies.

VIII. Conclusion Many readers will deny either the gravity or the novelty of the problems inherent in the operation of persuasive technologies. My argument, however, does not rest on novelty but on scale and effectiveness. Whether we are dealing with a new legal problem or an old legal problem that has assumed new dimensions is a question capable of endless debate. Even if persuasive technology ‘only’ enables more extreme forms of traditional commercial practices, their increased effectiveness in itself should raise legal concerns. A starting point is the acknowledgment that the web constitutes a different transacting environment, where users process and interact with information differently than offline, and where they are subject to different, more powerful forms of persuasion. The web, in its commercial embodiment, challenges the assumption that users can recognise and thus neutralise persuasive intent or information bias. There is nothing new in the fact that businesses try to influence consumption choices. The novelty lies in the type and number of tools at their disposal. Whatever the legal response, a balance must be struck between an exaggeration of the problem and its underestimation. At present, the challenge seems to lie in the ignorance of the problem—at least from the perspective of the average internet user. The effectiveness of most persuasive technologies would be reduced if internet companies were limited in their ability to collect and process the personal information of internet users. It must be realistically assumed, however, that no drastic changes will occur in the area of privacy protection and that a sudden reversal of the trend of collecting and analysing increasing amounts of user data is unlikely. What could be done, however, is to cease treating privacy policies as if they were contracts and evaluate consent and disclosure requirements from a purely regulatory perspective. Enhanced, or express, consent requirements may constitute a good first step. It could, however, also be claimed that the only solution lies in an outright prohibition of certain technologies or practices. In this context, the difficulty lies in regulatory target setting. The first overriding question is what is it that we are trying to protect? It can hardly be assumed that the ‘protection of autonomy’ is sufficiently precise to provide regulatory guidance. Two additional challenges concern the very complexity of the technological environment and the speed of its change. With regards to complexity, it must be assumed that any regulatory effort would encounter difficulties in addressing the multitude of technological configurations and practices with sufficient precision. The challenge lies in identifying the salient features of a technology and defining the (potential or actual) threat posed by it. It must

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not be forgotten, however, that the main technology enabling user tracking, cookies, was originally designed for the benign purpose of filling and maintaining the contents of online shopping carts. Alternatively, following the example of the UCPD, it could be claimed that technology should be ignored and the focus should be placed exclusively on the practices thereby enabled. Again, what is it that we want to prohibit: the limitation or manipulation of choice? Or the distortion of market behaviour? Another challenge lies in the fact that internet-related technologies and practices are a constantly evolving regulatory target.116 Effective regulation requires, however, that the target be moderately stable or at least predictable.117 Complexity, change and the resulting unpredictability always dictate regulatory restraint, as neither the problem nor a solution may be readily identifiable. Whatever the approach, the risk of stifling or slowing the development of the internet economy will be an important factor to consider. In its present form, the free internet cannot exist without a constant stream of user data.

116 J Feich and R Werle, ‘Regulation of Cyberspace’ in Oxford Handbook of Regulation (Oxford, Oxford University Press, 2012) 525. 117 S Crawford, ‘The Internet and the Project of Communications Law’ (2007) 55 University of California at Los Angeles Law Review 359, 362.

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19 Snooping: How Should Damages be Assessed for Harmless Breaches of Privacy? ERIKA CHAMBERLAIN

I. Introduction In recent years, several common law jurisdictions have recognised ‘intrusion on seclusion’, or some variation thereof, as a new tort.1 For example, in Jones v Tsige,2 the Ontario Court of Appeal affirmed that a cause of action could arise where a defendant intentionally intruded on the private affairs of the plaintiff, in circumstances that a reasonable person would regard as highly offensive, causing distress, humiliation or anguish.3 The courts have gone to some lengths to explain why the time has come for privacy interests to be independently protected by tort law, given the ubiquity of personal data collection, the ease of access to confidential information, and the technological advances that allow for surveillance of our private affairs. However, the courts have been somewhat less helpful in providing guidance for the assessment of damages in these cases. The principles governing damages are particularly ambiguous in cases where the plaintiff has suffered no tangible harm, and where the defendant has not disclosed, or otherwise misused, the relevant information. This chapter explores the bases on which courts might assess damages in such cases of mere ‘snooping’. In Jones, the court suggested that ‘symbolic’ damages could be awarded, with an upper limit of $CAN20,000.4 It is hard to imagine many plaintiffs pursuing litigation for such a modest award. However, the increase in class actions for breaches of privacy (including in the highly publicised Ashley Madison case)5 has introduced the potential for

1 See, eg, C v Holland [2012] NZHC 2155; Trout Point Lodge v Handshoe 2012 NSSC 245. See also the discussion in Grosse v Purvis [2003] QDC 151; and Australian Law Reform Commission, Invasions of Privacy in the Digital Era (Report No 123, 2014). 2 Jones v Tsige 2012 ONCA 32, 108 OR (3d) 241. 3 ibid [71]. 4 ibid [87]. 5 Ashley Madison is an online dating service marketed to those who are married or in committed relationships, and therefore makes careful assurances with respect to clients’ privacy. The site was hacked during the summer of 2015 and clients’ personal information was published by the hackers. Class action lawsuits on behalf of the clients have been filed in Canada and the United States. See www.ashleymadisonclassaction.com.

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a much larger, aggregate award.6 Defendants may therefore be subject to substantial liability even in situations where no conventional ‘harm’ is caused. Moreover, in Gulati v MGN Ltd,7 Mann J of the English High Court awarded markedly more generous damages for a range of intangible harms associated with breach of privacy (such as injuries to autonomy, dignity and self-esteem). While the violation in Gulati (years of regular phone hacking) was undeniably more egregious than that in Jones (viewing banking records), the wide disparity in the damage awards points to an underlying uncertainty about the principles on which these awards are based. It is not surprising that the courts have had difficulty assigning monetary value to snooping. However, given that actions for breach of privacy are likely to become more frequent in the coming years,8 there is a need to provide some principled framework for the assessment of damages. This chapter provides a preliminary exploration of the possible justifications for damages in cases of ‘harmless’ breaches of privacy.

II. Jones v Tsige A. The Decision In Jones, the Ontario Court of Appeal recognised the new tort of ‘intrusion on seclusion’. In a judgment that reviewed authorities from across the common law world, as well as the various statutory schemes protecting privacy in Ontario, Sharpe JA concluded that there was still a gap in the law that ‘cr[ied] out for a remedy’.9 The defendant, a bank employee, had accessed the plaintiff ’s personal banking records 174 times over four years. This was not done for any legitimate business purpose, but was presumably related to the defendant’s romantic relationship with the plaintiff ’s ex-husband. The defendant did not disclose, or otherwise misuse, the plaintiff ’s information. Accordingly, there was no potential action for breach of confidence. Further, while the relevant privacy legislation allowed the plaintiff to file a complaint with respect to the unauthorised access, such a complaint would have to be filed against the defendant’s employer and, in any event, would not provide for damages.10 Sharpe JA thus argued that it was justifiable to extend the common law, so as to recognise an individual’s privacy interests in his or her personal information, which is increasingly collected, aggregated, and accessible in modern society. Based on Prosser’s leading article11 and the Restatement (Second) of Torts,12 Sharpe JA summarised the elements of the new tort as follows: Generally speaking, to make out [the] cause of action for intrusion on seclusion, a plaintiff must show (1) an unauthorized intrusion; (2) that the intrusion was highly offensive to the 6

See, eg, Condon v Canada 2014 FC 250; Hopkins v Kay 2015 ONCA 112. Gulati v MGN Ltd [2015] EWHC 1482 (Ch). 8 Even more recently, the tort of ‘public disclosure of embarrassing private facts’ was recognised in Ontario. See Doe 464533 v D 2016 ONSC 541, where the defendant had posted an intimate video of his ex-girlfriend on a pornography website without her consent. 9 Jones (n 2) [69]. 10 Personal Information Protection and Electronic Documents Act, SC 2000, c 5 (‘PIPEDA’). 11 W Prosser, ‘Privacy’ (1960) 48 California Law Review 383. 12 Restatement (Second) of Torts (1977) § 652B. 7

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reasonable person; (3) the matter intruded upon was private; and (4) the intrusion caused anguish and suffering.13

The first three elements emphasise that the tort is based on intrusion (not improper use or disclosure of information). This means that the court’s inquiry will focus on the offensiveness of the defendant’s actions and on the plaintiff ’s expectation of privacy. With respect to the final element, Sharpe JA noted that ‘anguish and suffering are generally presumed once the first three elements have been established’.14 As discussed below, this has led to some confusion about whether anguish or distress is an element of the tort, and how this relates to the assessment of damages. Sharpe JA was clear that ‘proof of actual loss’ is not required in order to make out a successful claim for intrusion on seclusion, and went on to explain how damages should be assessed in cases, like Jones, where the plaintiff has suffered no provable pecuniary loss.15 He noted that damages in such cases are ‘symbolic’, serving to vindicate the plaintiff ’s rights and acknowledge their infringement.16 He stressed that a conventional range of damages is required to ensure that plaintiffs are treated consistently, predictably and fairly. Sharpe JA then reviewed the damage awards in the limited number of cases where some invasion of privacy had occurred (albeit addressed through the torts of nuisance, trespass or breach of confidence, or through statutory causes of action in some provinces). Of these, the highest award was in the case of MacKay v Buelow,17 where the defendant had stalked and harassed his ex-wife for several months, threatening to kill her and kidnap their child. The defendant was criminally convicted for breach of recognisance, intimidation, and trespass by night, and was found liable in tort for trespass to the person and intentional infliction of mental suffering. The plaintiff was awarded $44,000 in future care costs for post-traumatic stress disorder. She was awarded an additional $25,000 for her non-pecuniary losses, as well as $15,000 in aggravated damages and $15,000 in punitive damages, on account of the ‘calculated, devilishly creative, and entirely reprehensible conduct of the defendant.’18 The next-highest damage award was $50,000 (including $35,000 in punitive damages), in a case where the plaintiff ’s landlord had installed a video camera in her apartment and recorded her in the bathroom and bedroom.19 These cases suggest that the Canadian courts have been relatively ungenerous in awarding damages for breach of privacy, even where the defendant’s conduct is egregious. Having reviewed the relevant Canadian cases, Sharpe JA fixed the upper limit of the range of so-called ‘conventional’ awards at $20,000.20 Sharpe JA set out the relevant factors to consider, borrowing from the Manitoba Privacy Act: (1) the nature, incidence and occasion of the defendant’s wrongful act; (2) the effect of the wrong on the plaintiff ’s health, welfare, social, business or financial position; (3) any relationship, whether domestic or otherwise, between the parties; (4) any distress, annoyance or embarrassment suffered

13

Jones (n 2) [55], citing Prosser (n 11) 389. ibid [60]. 15 ibid [74]–[75]. 16 ibid [75], citing S Waddams, The Law of Damages (Toronto, Canada Law Book, 2011) [10.50] (looseleaf). 17 MacKay v Buelow (1995) 24 CCLT (2d) 184 (Ont CJ (Gen Div)). 18 ibid [17]. 19 Malcolm v Fleming [2000] BCJ No 2400 (SC) (QL). 20 Jones (n 2) [87]. 14

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by the plaintiff arising from the wrong; and (5) the conduct of the parties, both before and after the wrong, including any apology or offer of amends made by the defendant.21

Applying these factors to Jones, Sharpe JA assessed damages at $10,000. While the defendant’s actions were deliberate, repeated, and likely to provoke strong feelings, she had apologised and attempted to make amends. Further, the plaintiff had suffered no public embarrassment, or harm to her health, social or financial position.22 Relatively few cases have proceeded to the stage of final judgment since Jones. In McIntosh v Legal Aid Ontario,23 the plaintiff claimed for intrusion on seclusion after her ex-boyfriend gave her personal information to the defendant (his new girlfriend), who worked at Legal Aid Ontario. The defendant learned that the plaintiff had been involved in a child protection matter and allegedly threatened to call Children’s Aid to have the plaintiff ’s children taken away from her. However, there was no evidence that a call had actually been made, and the trial judge found that the invasion of privacy affected the plaintiff ’s emotional state ‘in a minor fashion only’.24 The judge accordingly awarded only $7,500 for the improper access to the plaintiff ’s private information. An even more modest award was made in Albayate v Bank of Montreal,25 where the defendant had erroneously changed the plaintiff ’s mailing address without her knowledge or consent. As a result, some of her bank statements were sent to her ex-husband, and two credit bureaux received inaccurate information. It was not proved that the ex-husband ever opened the bank statements, and the defendant apologised immediately when it learned of its error. As the plaintiff was not able to establish any loss, she was awarded nominal damages in the amount of $2,000.26 Based on these cases, there is no apparent desire by the Canadian courts to impose significant damages for intrusion on seclusion in the absence of pecuniary harm or lasting injury to the plaintiff.

B. Class Actions for Intrusion on Seclusion Given the modest range of conventional damages available, it is unlikely that many plaintiffs (or their lawyers) will find it worthwhile to pursue a claim in the absence of tangible harm. Nevertheless, where the intrusion involves a large number of potential plaintiffs, class proceedings might make the claim more economically feasible. Since Jones, several class actions have been initiated in Canada with respect to intrusion on seclusion. In Condon v Canada,27 Gagné J certified a class action on behalf of 583,000 individuals after the Minister of Human Resources and Skills Development Canada lost an external hard drive on which their personal information was stored. The information included their names, dates of birth, addresses, social insurance numbers (SINs), and student loan

21

ibid, citing the Privacy Act, CCSM c P125, s 4(2). ibid [90]. 23 McIntosh v Legal Aid Ontario 2014 ONSC 6136. 24 ibid [33]. The judge rejected the plaintiff ’s claim that her distress caused her to lose her job, resulting in lost wages and expenses for retraining. 25 Albayate v Bank of Montreal 2015 BCSC 695. This claim was brought under the Privacy Act, RSBC 1996, c 373, s 1, but Gerow J applied the principles of Jones to determine an appropriate level of damages for a claim where no pecuniary harm was proved. 26 ibid [138]. The plaintiff had claimed over $500,000 in damages. 27 Condon (n 6). 22

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balances. The information on the hard drive was not encrypted, and the drive was apparently stored in an unlocked desk drawer. Thus, the defendant was in breach of its obligations under the relevant privacy statutes, as well as its own policies with respect to encryption and locked containers. The plaintiffs acknowledged that their damages were minimal, as they had not (yet) suffered any tangible harm as a result of the lost information.28 The defendant argued that it would be inappropriate to certify a class action in which each plaintiff was entitled only to nominal damages, as the plaintiffs’ lawyers were the only parties who would stand to benefit financially from the outcome.29 Gagné J was somewhat intrigued by this argument, but concluded that it was best deferred until the merits of the case could be heard. The defendant also argued that a class action was not the preferred procedure for addressing the privacy breaches, since it had offered to provide Credit Flags and annotations to the SIN registry to address any future identity fraud that might occur. Further, the Privacy Commissioner had initiated an investigation and had the authority to present non-binding recommendations as a consequence.30 Gagné J rejected these arguments, stressing that the solutions offered by the defendant were ‘woefully inadequate for the needs of the Plaintiffs’, as they would provide no compensation to the plaintiffs for the breaches of their privacy.31 This decision suggests that the damage awards for intrusion on seclusion, even in cases where the plaintiff has suffered no tangible harm, are meant to compensate the plaintiff for some loss. Therefore, the conventional award is not merely a symbolic recognition, or ‘vindication’,32 of the plaintiff ’s privacy interests. Such a marking or declaration of the plaintiff ’s interests could presumably be accomplished through the Privacy Commissioner’s investigation, and would not require an additional remedy in tort.33 The defendant’s arguments in Condon nevertheless provide interesting context for the analysis in this chapter. While it is unlikely that individual plaintiffs will pursue claims for intrusion on seclusion if they will receive only nominal damages, their claims will be more attractive to lawyers if they are aggregated. Does this benefit anyone other than the lawyers? If so, what are the primary benefits of such an action? The Supreme Court of Canada’s jurisprudence on class actions is instructive in this respect. In AIC v Fischer,34 the court affirmed the goals of class proceedings as behaviour modification, judicial economy and

28 With respect to their claim in negligence, the plaintiffs alleged that they were at an increased risk of identity theft. Gagné J rejected this as a matter of fact: ibid [69]. 29 ibid [50]. 30 ibid [106]–[108]. 31 ibid [111]. In addition, the Privacy Commissioner is only empowered to hear individual complaints; her office would be overwhelmed by the thousands of claimants in these circumstances. 32 Kit Barker has helpfully explained the various ways that courts and commentators use the term ‘vindication’: K Barker, ‘Private and Public: The Mixed Concept of Vindication in Torts and Private Law’ in S Pitel, J Neyers and E Chamberlain (eds), Tort Law: Challenging Orthodoxy (Oxford, Hart Publishing, 2013) 59. I use the term in this chapter in the sense of providing ‘institutional acknowledgment’ that the plaintiff ’s rights or interests have been wrongly interfered with by the defendant: ibid 69–70. 33 Gagné J’s decision is consistent with Jones in this respect. The plaintiff in Jones could have filed a complaint under PIPEDA (n 10), which would have provided an institutional declaration of the rights-violation. 34 AIC v Fischer 2013 SCC 69, [2013] 3 SCR 949. These principles were first enunciated in Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46, [2001] 2 SCR 534; and Hollick v Toronto (City) 2001 SCC 68, [2001] 3 SCR 158.

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access to justice.35 The court identified economic feasibility as the most common barrier to access to justice, in that the costs of litigation are high in comparison to the value of the claim.36 This is especially true when the claim involves nominal or symbolic damages, as is the case with ‘harmless’ breaches of privacy. Yet, the right to privacy rings hollow if an individual plaintiff ’s claim is ‘too small’ to justify its vindication or enforcement through the courts.37 Moreover, the goal of behaviour modification can be fostered by class actions for intrusion on seclusion: by creating the possibility of a large aggregate award, they can have a deterrent effect on defendants who might otherwise discount their privacy obligations to individual clients. In Hopkins v Kay,38 the Ontario Court of Appeal refused to strike out a class action arising from the wrongful access of 280 patient records at a hospital. The plaintiffs initially based their claim on breach of the Personal Health Information Protection Act (PHIPA),39 but later relied on the newly recognised tort of intrusion on seclusion. The defendant hospital argued that the common law action was precluded by PHIPA, which, it argued, created an exhaustive code for dealing with breaches of privacy in the healthcare context. The Court of Appeal rejected the defendant’s contention, basing its reasoning, in part, on the limited remedial provisions in PHIPA. The Act provides a right to commence proceedings in the Superior Court of Justice only for contraventions that result in ‘actual harm’; if the defendant acted wilfully or recklessly, the court may include an award of up to $10,000 for ‘mental anguish’.40 Thus, a plaintiff who is restricted to claiming under PHIPA could potentially receive a smaller damages award than is available for the tort of intrusion on seclusion. Moreover, a plaintiff who suffered no ‘actual harm’ would be precluded from bringing a claim altogether. The Court of Appeal accordingly allowed the plaintiffs’ common law claim to proceed. Thus, like Condon, the decision in Hopkins is significant because it allows for a potential class proceeding in circumstances where individual claims might not be financially worthwhile, including where the plaintiffs have suffered no tangible harm. It also suggests that the courts view the damage awards in these cases as accomplishing more than mere vindication, in the sense of a symbolic marking of the infringement of the plaintiff ’s right (which could be accomplished under PHIPA), and as compensating for something other than tangible loss. This underscores the need to determine the principles on which damages are justified and assessed.

III. Possible Bases on Which to Assess Damages While the question of how to assess damages for ‘harmless’ breaches of privacy is relatively new, it is part of a broader discussion about the nature of harm or loss in private law, and about how this is translated into damages. For torts that are actionable per se (such as

35

Fischer (n 34) [16]. ibid [27]. 37 Dutton (n 34) [28]: ‘Sharing costs ensures that injuries are not left unremedied.’ 38 Hopkins (n 6). 39 Personal Health Information Protection Act, SO 2004, c 3, Sch A. 40 ibid s 65. 36

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battery or trespass to land), plaintiffs can successfully sue even though they have not suffered a ‘loss’ in the conventional sense. But quantifying damages in such cases is a daunting and frequently arbitrary exercise. This is especially true for a tort such as intrusion on seclusion, which has a nebulous underlying right and which entails emotional distress or anguish (although, as discussed below, it seems that a plaintiff can succeed even in the absence of such distress). Thus, intrusion on seclusion resembles the other torts that are actionable per se, but has characteristics that suggest that damages will, at least in part, reflect the intangible effects of the wrong on the plaintiff. When a court awards conventional damages for intrusion on seclusion, is it compensating for the plaintiff ’s loss, or is it seeking to accomplish something else? If it is the former, then what exactly has the plaintiff lost in a case of mere snooping? Andrew Tettenborn has suggested that some of the difficulties associated with assessing damages for harmless torts can be alleviated if we reject the assumption that loss ‘is an objectively observable juridical phenomenon.’41 According to Tettenborn, loss is not a black-and-white concept, but is ‘essentially indeterminate: it contains large normative and evaluative elements as well as factual ones.’42 He proposes that the question of ‘loss/no loss’ be replaced by a valuation of the plaintiff ’s interests that have been infringed by the defendant’s wrong. He notes that most torts involve the infringement of non-cash interests, including personal injury, reputation and (especially relevant to invasions of privacy) dignitary or emotional interests.43 In awarding damages, the courts do their best to assign monetary value to those interests. Tettenborn’s proposal is attractive for the tort of intrusion on seclusion. By valuing the underlying interest that has been infringed (privacy), Tettenborn’s theory dispenses with the need to assign a value to the plaintiff ’s anxiety or distress, which largely depends on the individual’s personal sensibilities.44 Nevertheless, it does not get us much further in the search for useful guidelines through which to assess damages for breach of privacy. We still need to assign some value to the plaintiff ’s privacy interests, which are intrinsically vague and, to some extent, subjective.45 The discussion below explores some of the considerations that courts might take into account when justifying or assessing damages for harmless intrusion on seclusion.

A. Vindication As noted above, recent Canadian decisions suggest that damages for intrusion on seclusion do more than simply vindicate, or mark, the plaintiff ’s rights; vindication can typically be accomplished through existing statutory schemes, and does not require an action

41 A Tettenborn, ‘What is a Loss?’ in J Neyers, E Chamberlain and S Pitel (eds), Emerging Issues in Tort Law (Oxford, Hart Publishing, 2007) 441, 456. 42 ibid. 43 ibid 458. 44 ibid 463. See C Sunstein, ‘Incommensurability and Valuation in Law’ (1994) 92 Michigan Law Review 779. 45 Tettenborn acknowledges that his theory may not resolve the difficulties of assessing damages in cases lacking a balance-sheet loss, but argues that interests are more coherently valued than the ‘vacuous’ notion of loss: ibid 465.

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in tort. Nevertheless, it seems that an award of ‘symbolic’ damages must, by definition, have some vindicatory justification.46 Indeed, it is common to justify damages in cases of ‘harmless’ torts on the grounds that they are necessary to vindicate the plaintiff ’s rights (or interests).47 This is the motivation behind Holt CJ’s famous principle of ubi ius, ibi remedium.48 The questions that then arise in individual cases are: what rights are being vindicated? And how do we assign a value to those rights? The first question is complex and beyond the scope of this chapter. In their seminal article, Warren and Brandeis described the underlying right in privacy claims as ‘the general right of the individual to be let alone.’49 Their focus was primarily on the non-consensual publication of private events, photos, correspondence, and artistic pursuits, and they were openly critical of the gossipy press of their day.50 By contrast, Prosser attempted to identify the relevant interests protected by the so-called right to privacy, including mental wellbeing (in the case of intrusion on seclusion) and proprietary interests (in the case of appropriation of the plaintiff ’s identity).51 As discussed below, however, the plaintiff ’s mental distress is only one consideration in awarding damages for ‘snooping’. Further, as there is currently no freestanding common law right to be free from mental distress, that cannot be the right that is being vindicated by an award of conventional damages. It is perhaps more promising to consider the snooping cases as vindicating proprietary rights, but only if we accept the contentious argument that individuals are the owners of their personal information and have a right to exclude others from its view or hearing.52 Moreover, not all of the cases involve an invasion of informational privacy. Rather, in some snooping cases, plaintiffs appear to be resting their claims on no more than a basic right ‘to be left alone’. However the right to privacy is defined, it is the second question that is of primary interest to me in this chapter: how do we ascribe value to the right to privacy, especially in cases where the plaintiff suffers no other legally-recognised harm? More generally, how can we frame the issue in terms of tort law’s remedial response to other ‘harmless’ torts, where the plaintiff ’s claim is based principally on the need to vindicate his or her rights? One way of conceptualising damages as a vindication of rights is through Robert Stevens’s argument that damages in tort are ‘substitutive’. That is, when the defendant has infringed the plaintiff ’s primary rights (to property, to bodily security, etc), a secondary right to damages arises as a ‘next-best’ substitute for the primary right.53 These substitutive damages are distinct from compensatory damages, which are assessed in accordance with the consequential losses the plaintiff has suffered. According to Stevens, substitutive damages should be assessed objectively, and should be based on the value of the right at the

46 See

Jones (n 2) [75]. generally N Witzleb and R Carroll, ‘The Role of Vindication in Torts Damages’ (2009) 17 Tort Law Review 16. 48 Ashby v White (1703) 2 Ld Raym 938, 92 ER 126 (Eng CA), rev’d 3 Ld Raym 320, 92 ER 710 (UKHL). 49 S Warren and L Brandeis, ‘The Right to Privacy’ (1890) 4 Harvard Law Review 193, 205. 50 ibid 196. 51 Prosser (n 11) 406–08. 52 See, eg, J Litman, ‘Information Privacy/Information Property’ (2000) 52 Stanford Law Review 1283; V Bergelson, ‘It’s Personal But Is It Mine? Toward Property Rights in Personal Information’ (2003) 37 University of California at Davis Law Review 379; and PM Schwartz, ‘Property, Privacy, and Personal Data’ (2004) 117 Harvard Law Review 2056. 53 R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 60. 47 See

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time of infringement. In cases where the plaintiff suffers consequential loss, the substitutive damages are often ‘obscured because in most cases the value attached to the right is precisely the same as the loss suffered.’54 However, Stevens stresses, ‘it is a mistake to think that where no loss is suffered no claim for damages is available.’55 Where there is no consequential loss to the plaintiff (or gain to the defendant), Stevens suggests that a value can be assigned to the right by imagining a hypothetical bargain between the parties; that is, the right should be assigned a certain market value. It is not my intention to critique Stevens’s substitutive damages thesis here.56 Rather, I will cautiously observe that breach of privacy could be a particularly difficult instance for assessing the market value of the plaintiff ’s rights. Doubtless, in many cases, plaintiffs would never even consider granting permission to defendants to snoop on their private affairs. And more so than harmless batteries or trespasses to property, a harmless breach of privacy could have lingering effects on the plaintiff ’s dignity and sense of security. Once one’s personal information has been snooped upon, the privacy of that information can never be fully regained. Further, even Stevens seems at a loss to pin down the principles on which we assign values to rights infringements: The task of the court in quantifying rights outside of the context of personal injury is less easy as they are not as easily placed on a scale. How does my right to my good name equate with my rights to the quiet enjoyment of my land? However, there is no doubt that substitutive damages are awarded and the courts have no choice but to set out guidelines for their recovery.57

Stevens suggests that the courts must use a tariff system, ‘with the correct quantification turning upon the degree of the seriousness of the infringement of the right.’58 Presumably, we could at least agree that viewing the plaintiff in the nude is a greater infringement than looking at her Social Insurance Number, but this does not get us very far in actually fixing a sum of damages for such intrusions. It simply suggests that damages for intrusion on seclusion will fall on some sort of continuum, and that they should be assessed objectively. Jason Varuhas has also expressly analysed tort law damages as fulfilling vindicatory purposes.59 Like Tettenborn, he suggests shifting the focus to interests, rather than rights.60 Varuhas uses torts that are actionable per se as his ‘ideal type’ of torts that are strongly vindicatory in nature; this is reflected in the fact that ‘an interference with the protected interest is in itself recognized as a form of damage.’61 Varuhas describes the interference as ‘normative’ damage, and thus characterises the damages for these torts as compensatory, even in cases where the plaintiff suffers no consequential harm. He continues, ‘The status within the legal order and inherent value of the interests are reinforced by

54

ibid 61.

55 ibid.

56 Others

are far more qualified to do so. See J Murphy, ‘Rights, Reductionism and Tort Law’ (2008) 28 OJLS 393; and A Burrows, ‘Damages and Rights’ in D Nolan and A Robertson (eds), Torts and Rights (Oxford, Hart Publishing, 2012) 275. 57 Stevens (n 53) 79. 58 ibid. 59 J Varuhas, ‘The Concept of “Vindication” in the Law of Torts: Rights, Interests and Damages’ (2014) 34 OJLS 253. 60 ibid 259. 61 ibid 268.

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roviding for monetary redress wherever those interests are wrongfully interfered with p regardless of whether the interference has any negative effects on the claimant.’62 Varuhas argues that, unlike Stevens’s binary rights-based approach (ie, either a right has been infringed or not), his own focus on protected interests helps to explain the variation in damages awards across a range of torts, and in a range of factual circumstances.63 Not every false imprisonment involves the same interference with liberty interests, nor does every trespass to land represent the same interference with exclusive possession. Similar to Stevens’s substitutive damages, Varuhas’s normative damages should be assessed on the bases of the relative importance of the interest and the extent of the interference with that interest.64 In so far as his theory of ‘interests’ is more nuanced and fact-driven than a pure rights-based analysis, it suggests perhaps a greater set of gradations on the continuum of damages than Stevens’s purportedly more objective approach. Finally, Varuhas argues that aggravated damages will be available to compensate for mental distress or additional injury to the plaintiff ’s dignity. He writes that such damages are appropriate in a vindicatory system, ‘to the extent that such damages recognize that a deplorable and disrespectful interference with one’s fundamental interests is so serious an affront that it will naturally damage one’s feelings of dignity and pride.’65 Although intrusion on seclusion does not exhibit all of Varuhas’s core features of torts that are actionable per se,66 his vindicatory principles seem to map relatively well onto the tort as it was outlined in Jones. It is apparently actionable without proof of loss, and thus, by its nature, affirms the importance of the plaintiff ’s privacy interests. The ‘conventional sum’, while assessed more or less objectively, considers the relative importance of the plaintiff ’s interests and the extent to which the defendant interfered with those interests. While there is not yet a sufficient number of cases to describe the range of conventional awards, it can reasonably be assumed that higher awards will be imposed for highly sensitive personal information (such as medical records, information about sexual activity, or images of the plaintiff in the nude) than for more innocuous information (such as one’s Social Insurance Number). Similarly, viewing the information once or twice is presumably less of an interference than viewing the information many times over an extended period. Aggravated damages are available where the plaintiff has experienced exceptional humiliation or suffering (although Sharpe JA suggested that this would occur in a limited number of cases).67 While the precise role of damages as vindication is still unsettled in tort law, it is more regularly and explicitly applied in claims for breaches of human rights or constitutional

62 ibid. 63

ibid 272. ibid 283. For example, damages for false imprisonment would consider the duration of the imprisonment and the degree of confinement. 65 ibid 284. 66 That is, actionable without proof of loss; strictness of liability; onus on the defendant to justify interference with the plaintiff ’s interest; and narrowly construed defences: ibid 261–67. 67 Jones (n 2) [88]. Sharpe JA stressed the desirability of consistency in cases involving symbolic or moral damages. 64

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law.68 For example, Canadian courts may gain some guidance on assigning a financial value to vindication by referring to the jurisprudence on the damages available under section 24(1) of the Charter of Rights and Freedoms.69 In Vancouver (City) v Ward,70 the Supreme Court of Canada set out the three functions served by Charter damages: compensation, vindication and deterrence. Importantly, the Court noted that damages may be available even in cases where the claimant has not suffered personal loss, if the need for vindication and deterrence calls for an award.71 According to the Supreme Court, Charter damages can serve both private and public vindicatory purposes; with respect to the latter, damages are said to affirm constitutional values and address the harm that an infringement of Charter rights causes to society.72 Accordingly, they serve to uphold the rule of law and restore public confidence in the system of constitutional protection.73 The availability of Charter damages in cases of ‘harmless’ breaches is also instructive because it indicates that a simple declaration that rights have been infringed (which is also available under section 24(1)) might not always be sufficient to fulfil the Charter’s vindicatory purposes. The vindicatory role of Charter damages is not merely to mark the infringement of the right, but to provide sufficient ‘teeth’ to the Charter so that rights are not ‘whittled away by attrition.’74 The functions of vindication and deterrence are, thus, closely related in the sphere of Charter damages.75 Although public purposes are obviously not applicable in claims for intrusion on seclusion, it is useful that the Supreme Court of Canada identified both the seriousness of the breach and its impact on the claimant as a ‘principal guide’ to determining an appropriate quantum of damages for vindication.76 These factors can be readily applied in snooping cases. In Jones, for example, Sharpe JA explained that damages should reflect the nature of the defendant’s wrongful act and its effects on the plaintiff ’s health and welfare.77 Conveniently for the present analysis, Ward involved a Charter violation which was a violation of the claimant’s privacy: he was wrongly strip-searched by corrections officers. The court noted that strip searches are ‘inherently humiliating and degrading regardless

68 See generally Attorney General of Trinidad and Tobago v Ramanoop [2005] UKPC 15, [2006] 1 AC 328; Lumba v Secretary of State for the Home Department [2011] UKSC 12, [2012] 1 AC 245. The latter case disapproved of introducing a specific category of ‘vindicatory damages’ in private law. 69 Pt I of the Constitution Act, 1982, being Sch B to the Canada Act 1982 (UK) 1982, c 11. 70 Vancouver (City) v Ward 2010 SCC 27, [2010] 2 SCR 28. 71 ibid [30]. 72 ibid [28]. One might legitimately ask why the plaintiff is the beneficiary of damages awarded for these public purposes. Nevertheless, given the very modest awards that have been granted (especially relative to the costs of litigation), claimants are not receiving any real windfalls under the Charter. It is not demonstrably unfair that they receive some benefit for acting as ‘private Attorney Generals vindicating the public interest in Charter compliance.’ K Roach, ‘A Promising Late Spring for Charter Damages: Ward v. Vancouver’ (2010) 29 National Journal of Constitutional Law 145, 166–67. 73 See also Ramanoop (n 68) [19], where Lord Nicholls similarly stressed the sense of public outrage reflected in vindicatory awards for breach of constitutional rights. 74 Ward (n 70) [25]. The Court noted that, while Charter damages may have a ‘punitive aspect’, there is a ‘general reluctance in the international community to award purely punitive damages’ for breaches of constitutional law: ibid [56]. 75 Barker explains that vindication in the sense of punishing and deterring the defendant is relatively rare in contemporary private law, but more common in public law. Barker (n 32) 78–80. 76 Ward (n 70) [52]. 77 Jones (n 2) [87].

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of the manner in which they are carried out and thus constitute a significant injury to an individual’s intangible interests.’78 On the other hand, the claimant was not touched during the search, nor was he forced to remove his underwear. The officers were acting in good faith, and the claimant did not suffer any apparent physical or psychological injury. In the end, the court upheld the trial judge’s award of $5,000, which can only be described as modest. Thus, whether one applies private law or constitutional law principles, it appears that damage awards aimed primarily at vindicating the plaintiff ’s right to privacy are likely to be relatively small, at least in Canada. This is perhaps inevitable for damages that are described as ‘symbolic.’

B. Loss of Autonomy Damages for intrusion on seclusion can also reflect the plaintiff ’s loss of autonomy with respect to his or her private information. Under this analysis, damages focus not on the somewhat slippery concept of privacy, but on the plaintiff ’s ability to decide the circumstances under which he or she would choose to share private information with others. By snooping on the plaintiff ’s private affairs, the defendant has deprived him or her of this autonomy. Notably, autonomy was at the heart of the right to privacy as outlined by Warren and Brandeis. They wrote: ‘The common law secures to each individual the right of determining, ordinarily, to what extent his thoughts, sentiments, and emotions shall be communicated to others.’79 Similarly, in his influential book, Privacy and Freedom,80 Westin identified the protection of autonomy as one of the primary functions performed by individual privacy. He wrote, ‘The most serious threat to the individual’s autonomy is the possibility that someone may penetrate the inner zone and learn his ultimate secrets, either by physical or psychological means.’81 Westin also argued that the autonomy protected by privacy is ‘vital to the development of individuality and consciousness of individual choice in life.’82 Privacy is thus essential to individual freedom in a modern democracy: an individual who has no privacy is not truly free. This central importance of privacy would suggest that even apparently ‘harmless’ violations of privacy are worthy of compensation. The Ontario Court of Appeal stressed the importance of autonomy in Jones, particularly in its discussion of the privacy interests protected by the Charter.83 Section 8 of the Charter protects against unreasonable search and seizure and is, according to the Supreme Court of

78

Ward (n 70) [64]. Warren and Brandeis (n 49) 198. A Westin, Privacy and Freedom (New York, Atheneum, 1968) 33. 81 ibid. 82 ibid 34. 83 Although the Charter applies only to actions by the state, and not to private disputes between individuals, the Supreme Court has held on several occasions that the common law should develop in a manner consistent with Charter values. See, eg, RWDSU v Dolphin Delivery Ltd [1986] 2 SCR 573 (secondary picketing protected by freedom of expression and cannot be enjoined to prevent the tort of inducing breach of contract); Grant v Torstar Corp 2009 SCC 61, [2009] 3 SCR 640 (freedom of expression protects responsible communications in the public interest, which can be raised as a defence to defamation). 79 80

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Canada, ‘[g]rounded in a man’s physical and moral autonomy.’84 The Court has recognised three aspects of privacy under section 8: personal privacy, territorial privacy and informational privacy. While all of these are potentially implicated in claims for intrusion on seclusion, it is informational privacy that is most likely to be at issue in claims for snooping. In R v Tessling,85 Binnie J explained that the concept of informational privacy is based on the assumption that personal information belongs fundamentally to each individual, and that he or she is entitled to determine how, when, and in what circumstances that information will be shared with others.86 This conception of autonomy is also evident in privacy legislation. While there are many variations of this legislation, a common purpose is to allow individuals to determine how their personal information is collected, how it is used, and to whom it is disclosed.87 This is why custodians of personal information must generally gain consent for its collection, use or disclosure; this consent must be informed and cannot be obtained through deception or coercion.88 Individuals may withdraw or impose conditions on their consent, and may ask to have that information corrected. Thus, individuals have considerable control over their personal information. Given its prevalence in Charter jurisprudence and privacy legislation, loss of autonomy would appear to be a promising basis on which to award damages for harmless breaches of privacy. Indeed, in Jones, Sharpe JA relied on the Charter jurisprudence to support the recognition of intrusion on seclusion as a new tort. Arguments about autonomy also align well with the market value approach to assessing damages, as we can realistically imagine plaintiffs charging a fee for the ability to collect and use their personal information. However, Sharpe JA did not expressly consider the loss of autonomy when assessing the conventional damages in Jones. In contrast, autonomy figured prominently in the damages assessment in Gulati.89 The facts of that case, while detailed and highly technical in the written judgment, essentially involved the defendants eavesdropping on the plaintiffs’ voice messages, and thereby obtaining information about their personal and professional lives. While some of the hacking resulted in the publication of news stories, not all of it did. Gulati thus provides some guidance for assessing damages in claims where no material harm resulted from the defendant’s activities of snooping. In particular, one of the plaintiffs, Mr Yentob, was not the subject of any news publications; his claim was based entirely on the severity and personal impact of the invasion of his privacy.90 Mann J recognised that one of the primary values underlying such claims is personal autonomy, ie, the right to control access to, and dissemination of, one’s own personal information.91 The plaintiffs in Gulati, whose voice messages were snooped on for several years, were robbed of their ability to control access to their

84

R v Dyment [1988] 2 SCR 417, 427 (LaForest J). R v Tessling 2004 SCC 67, [2004] 3 SCR 432. 86 ibid [23]. 87 See, eg, Personal Health Information Protection Act (n 39) ss 18, 29; PIPEDA (n 10) s 3. 88 Personal Health Information Protection Act (n 39) s 18(1). 89 Gulati (n 7). 90 ibid [109]. 91 ibid [100], citing the Human Rights Act 1998, ss 8, 10; and Campbell v MGN Ltd [2004] 2 AC 457 (HL). 85

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personal information. Importantly, Mann J stressed that autonomy was worthy of protection independently of any distress that the loss of such autonomy caused to the plaintiff. As described below, the award to Yentob was significantly more generous (£85,000) than the awards that have been imposed by the Canadian courts either for intrusion on seclusion or for far more egregious invasions of privacy. In his contribution to this volume, Tsachi Keren-Paz defines the constitutive elements of injury to autonomy as the deprivation of meaningful choice, a reliance interest, and irreversibility.92 On Keren-Paz’s analysis, injury to autonomy is a loss in itself: it is independent of any risk that actually materialises. Loss of a choice is itself ‘an inferior state of affairs’ that has been brought about without the plaintiff ’s knowledge or consent.93 In the context of snooping, the defendant has deprived the plaintiff of the opportunity to keep his or her affairs private, and the deprivation is irreversible, in that privacy can never be fully regained. Although Keren-Paz admits that injury to autonomy is incommensurable with money, he points out that this is not unique in the world of torts, which does its best to assign monetary value to pain and suffering and loss of reputation, for example.94 Loss of autonomy has expressly been compensated with respect to other torts, including in situations where the court did not recognise other compensable harm. In Rees v Darlington Memorial Hospital NHS Trust,95 the defendant negligently performed a sterilisation procedure on the plaintiff, who subsequently gave birth to a healthy, but unwanted, child. While the House of Lords refused to compensate the plaintiff for the costs of raising the child, they awarded a ‘conventional sum’ of £15,000 to reflect that the plaintiff was deprived of the opportunity to determine the size of her family and ‘to live her life in the way that she wished and planned.’96 Lord Millett viewed reproductive autonomy as ‘an important aspect of human dignity, which is increasingly being regarded as an important human right which should be protected by law. The loss of this right is not an abstract or theoretical one.’97 An interesting aspect of the conventional sum awarded in Rees is that, by definition, it does not vary with individual plaintiffs. Thus, it does not reflect how much any given plaintiff valued his or her autonomy to choose whether to have children, nor the effects that the loss of this autonomy has had on the plaintiff ’s life. Jason Varuhas has suggested that Rees might provide an example of ‘normative damage’, and that the conventional damages serve a vindicatory function by ‘attesting to and reinforcing the importance of the interest’ in reproductive autonomy.98 A similar argument can be made with respect to conventional damages for intrusion on seclusion: they signal that the decision whether to disclose personal information belongs to the plaintiff alone, regardless of how much any individual plaintiff values that decision. In contrast, Keren-Paz argues for a more subjective approach to damages for injuries to autonomy, suggesting that it is more consistent with the principles of restitutio and of

92

T Keren-Paz, ‘Compensating Injury to Autonomy: A Conceptual and Normative Analysis’ 421. ibid, 415. ibid, 430–33. 95 Rees v Darlington Memorial Hospital NHS Trust [2004] 1 AC 309 (HL). 96 ibid [8] (Lord Bingham). 97 ibid [123]. 98 Varuhas (n 59) 269–70. 93 94

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taking plaintiffs as you find them.99 If a given plaintiff places high value on autonomy, and suffers more when it is violated, then he or she should receive greater compensation. As discussed below, this appears to be reflected in the ability to award greater damages to plaintiffs who can prove mental distress as a result of an intrusion on seclusion. Somewhere between the uniform conventional award in Rees and Keren-Paz’s subjective approach is Tettenborn’s ‘interest-valuing approach’ to damages in cases of harmless torts. This approach is instructive in what Tettenborn calls the ‘exclusivity’ cases, that is, cases where the plaintiff has a right to exclude others from using his or her assets or property, but the defendant’s infringement of that right has not resulted in concrete financial loss to the plaintiff.100 Damages in these cases are typically assessed as the price the plaintiff would have charged for reasonable rent, or buyout. Tettenborn suggests that it is awkward to describe this award as representing a ‘loss’ to the plaintiff.101 Instead, he writes: abandon the idea of ‘loss’ as the touchstone for damages, and the matter neatly falls into place. The plaintiff ’s right to exclude the defendant from using her property … has been wrongfully set at nought: the question therefore is simply one of putting a value on that right. And the obvious answer for valuation purposes (indeed, arguably the only plausible one) is the amount for which that right could have disposed of in the market—ie the reasonable rent, or whatever.

Privacy cases, in some formulations, are similar to the exclusivity cases. The plaintiff ’s interests have been infringed in that he or she has lost the ability to exclude others from access to his or her personal information. In other words, the plaintiff has lost autonomy with respect to that information. Nevertheless, we are left with the difficulty of assessing a value for breach of privacy that is equivalent to a reasonable rent, or buyout price. Unlike real property or chattels, there is not always an obvious market for personal information. While it is plausible to assign a market value in circumstances where the defendant had the option of gaining access to the plaintiff ’s information legitimately (for example, where the defendant could have paid to use the plaintiff ’s personal information for the purposes of conducting surveys or research), it is much more difficult in situations where the plaintiff would never have chosen to share that information with the defendant (as in cases involving intimate information about the plaintiff ’s sex life). It may be that this points to a much higher award in some intrusion on seclusion cases. Finally, Kit Barker has taken a slightly different approach to the issue of user-fee or permission-fee damages in cases of harmless torts.102 Barker expressly acknowledges the difficulties posed by the assumption entailed in the exclusivity cases that the plaintiff would have charged a fee for the defendant’s use of the plaintiff ’s property; specifically (as with intimate sexual information), the plaintiff might never have chosen to waive exclusivity rights—for any fee. Barker suggests that user-fee damages instead represent the loss of the plaintiff ’s power to seek an injunction preventing the infringement of his or her rights.

99

Keren-Paz (n 92). Tettenborn (n 41) 460. 101 ibid 461, or as unjust enrichment to the defendant, which would presumably require the defendant to forfeit all profits gained from the wrong, not just the price of reasonable rent. 102 K Barker, “Damages Without Loss’: Can Hohfeld Help?’ (2014) 34 OJLS 631, 655. 100

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Once the infringement has occurred, Barker explains, the plaintiff has lost the power to obtain an injunction ex ante. The damages thus represent the plaintiff ’s ‘lost entitlement to “insist” on his permission [for the infringement] to be obtained.’103 Barker argues that the loss in his analysis is a personal loss, not a market loss; thus, the fee ‘should then reflect the amount that [the plaintiff] himself would reasonably have been able to ask for giving his permission.’104 Barker also posits that his argument might imply a right to permission fees in cases of ‘harmless’ disclosure of private information.105 Presumably, again, this loss might have a very high value for some plaintiffs in some cases of intrusion on seclusion. Loss of autonomy seems a very promising basis on which to justify and assess damages for harmless intrusions on seclusion. It is consistent with both the underlying goals and the operational provisions of privacy legislation, reflects that the plaintiff has irreversibly lost something of value to him or her, and provides a semblance of ‘market value’ for the plaintiff ’s loss. Further, it allows for damages to be assessed without reference to the more subjective issue of the emotional distress that may or may not have been suffered by the plaintiff as a result of the privacy invasion.

C. Emotional Distress Another potential basis on which to justify damages in snooping cases is that they reflect the plaintiff ’s emotional distress. In outlining intrusion on seclusion for the first time, Prosser wrote that it ‘appears obvious that the interest protected … is primarily a mental one.’106 Nevertheless, the relevance of emotional distress is a somewhat troublesome issue with respect to intrusion on seclusion. Emotional distress is entailed by the tort, but it appears that damages can be awarded even if the particular plaintiff has not suffered such distress. This could imply that a plaintiff who does suffer emotional distress is entitled to greater damages, as discussed in Gulati. What does this mean for cases of (otherwise) harmless snooping? Since Jones, there has been some debate in the Canadian courts about whether ‘distress’ is a required element of intrusion on seclusion. This stems from Sharpe JA’s description of the third and fourth elements of the tort: ‘[third] that a reasonable person would regard the invasion as highly offensive, [fourth] causing distress, humiliation or anguish.’107 While this seems to suggest that distress must be independently proved, Sharpe JA noted briefly that the fourth element ‘has received considerably less attention as anguish and suffering are generally presumed once the first three elements have been established.’108 Later in his judgment, Sharpe JA wrote that ‘proof of actual loss is not an element of the cause of action for intrusion on seclusion.’109

103 ibid. 104 ibid. 105

ibid, 656–57. Prosser (n 11) 392. 107 Jones (n 2) [71]. 108 ibid [60]. Sharpe JA was referring in this passage to the American tort of intrusion on seclusion. 109 ibid [74]. This seems to make intrusion on seclusion similar to defamation, where loss is presumed on publication of a defamatory statement about the plaintiff. 106

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Nevertheless, the relevance of emotional distress to intrusion on seclusion remained somewhat ambiguous in Jones. For instance, when discussing the issue of conventional damages, Sharpe JA posed the question, ‘what is the appropriate approach to damages in cases … where the plaintiff has suffered no pecuniary loss?’110 This statement clarifies that pecuniary loss is not a required element of the tort; thus, for example, a plaintiff could succeed by showing that the defendant outrageously intruded on her private financial records, even if the defendant did not use this information for the purposes of fraud or identity theft. Nevertheless, it does not shed light on whether the plaintiff must establish some form of ‘distress’ or other non-pecuniary loss in order to be successful. This has given rise to further argument and confusion in some subsequent cases. For example, in Hemeon v South West Nova District Health Authority,111 Pickup J discussed whether proof of distress was required to establish intrusion on seclusion in the context of the defendant’s request for the plaintiff ’s medical records. Hemeon was a certified class proceeding for the unauthorised access of medical records by an employee of the defendant. The representative plaintiff had been asked on discovery whether she had changed her hospital-attending behaviour as a result of the defendant’s actions. When she replied affirmatively, the defendant asked for production of her medical records as confirmation. Pickup J dismissed the defendant’s motion to compel their production, suggesting that the Canadian courts had not yet required evidence proving the plaintiff ’s ‘distress’ or ‘anguish and suffering’ in claims for intrusion on seclusion.112 Pickup J stressed that the representative plaintiff ’s individual distress was not relevant to the common issues in the action or to the question of whether aggregate damages were available. In another class proceeding, Evans v The Bank of Nova Scotia,113 Smith J certified a class of 643 bank customers whose private information was wrongfully disclosed by an employee to his girlfriend, who then disseminated it to third parties for improper purposes. Of those customers, 138 had reported subsequent fraud or identity theft to the bank, and had received compensation for their pecuniary losses. The bank argued that, because it had already provided compensation, it should not be subject to an additional claim for intrusion on seclusion. Smith J rejected this argument, explaining that the plaintiffs could still recover damages for emotional suffering and inconvenience.114 Smith J’s decision therefore suggests that emotional suffering is a loss in its own right. However, it is not clear whether Smith J would ultimately insist on proof of emotional suffering, whether the emotional suffering would have to flow from the identity theft, or whether such suffering is considered inherent in any intrusion on seclusion.115

110 ibid. 111

Hemeon v South West Nova District Health Authority 2015 NSSC 287. ibid [25]. 113 Evans v The Bank of Nova Scotia 2014 ONSC 2135. 114 ibid [47]–[48]. 115 Smith J’s analysis did not directly address this issue, but made the rather perplexing statement that those who suffered pecuniary loss from identity theft might also have suffered from emotional distress, hardship and inconvenience (ibid [52]). It is not clear whether Smith J meant to say that these are the only plaintiffs who could claim for mental distress, or whether damages for mental distress would also be available for plaintiffs who suffered no pecuniary harm. The issue is further confused because Smith J conflated this discussion with the damages for negligence and breach of contract, which are not available in the absence of recognised psychiatric harm. 112

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In any event, it is apparent that distress is relatively easy to establish in intrusion on seclusion cases, especially given that the tort already requires proof of highly offensive conduct by the defendant. But the mere acceptance of ‘distress’ (whether proved or presumed) as completion of the tort creates an apparent divergence between intrusion on seclusion and the Canadian courts’ broader disinclination to award damages for mental distress in the absence of some other harm.116 For example, in order to establish the tort of intentional infliction of mental suffering in Canada, a plaintiff must establish that he or she suffered a ‘visible and provable illness’.117 Similarly, a plaintiff must establish some form of ‘injury’ in order to succeed in a negligence claim. This was affirmed in Mustapha v Culligan of Canada Ltd,118 (the ‘fly in the water bottle’ case), where McLachlin CJC wrote: The law does not recognize upset, disgust, anxiety, agitation or other mental states that fall short of injury. I would not purport to define compensable injury exhaustively, except to say that it must be serious and prolonged and rise above the ordinary annoyances, anxieties and fears that people living in society routinely, if sometimes reluctantly, accept.119

Yet, when it comes to intrusion on seclusion, a plaintiff can succeed without a visible and provable illness. Not only is mental distress sufficient to make out the tort, but it is presumed on proof of the tort’s other elements. As one author has pointed out, this means that there is ‘substantial inequality in the treatment of victims of invasion of privacy and those who suffer other intentional affronts causing mental suffering.’120 There is no self-evident reason why plaintiffs claiming intrusion on seclusion should receive greater protection from tort law than plaintiffs claiming for some other outrageous conduct. The disparate treatment was recognised decades ago by Prosser, who noted that, for other torts, the courts have insisted upon extreme outrage … and upon genuine and serious mental harm, attested by physical illness, or by the circumstances of the case. But once ‘privacy’ gets into the picture, and the fact of intrusion is added, such guarantees apparently are no longer required.121

Prosser also suspected that intrusion on seclusion was a means by which the courts could fill the remedial gaps left by other torts, such as trespass, nuisance, and intentional infliction of mental distress, and noted that its main purpose was to protect mental interests.122 He did not otherwise attempt to explain the special treatment of intrusion on seclusion. The divergent treatment of mental distress is perhaps justified because such distress is parasitic or consequential to the legally recognised wrong of invasion of privacy (just as plaintiffs can claim for mental distress that results from the legal wrongs of battery or false imprisonment). This explanation is consonant with the formative analysis of Warren and

116 See S Aylward, ‘The Idea of Privacy Law: Jones v Tsige and the Limits of the Common Law’ (2013) 71 University of Toronto Faculty of Law Review 61, 76–78. 117 Prinzo v Baycrest Centre for Geriatric Care (2002) 60 OR (3d) 474 (CA) [48]. The plaintiff must also establish flagrant or outrageous conduct that is calculated to produce harm. This requirement is more relaxed in the United Kingdom: Rhodes v OPO & Anor [2015] UKSC 32, [2016] AC 219. 118 Mustapha v Culligan of Canada Ltd 2008 SCC 27, [2008] 2 SCR 114. 119 ibid [9]. 120 Aylward (n 116) 78. 121 Prosser (n 11) 422. 122 ibid 392.

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Brandeis, who argued that, once a ‘right’ to privacy is recognised, ‘the interposition of the courts cannot depend on the particular nature of the injuries resulting’.123 It is the violation of the right that entitles the plaintiff to damages; mental distress is merely a consequence of that violation.124 In contrast, some other forms of offensive conduct (such as unkind practical jokes or emotional cruelty) do not presently amount to legal wrongs.125 Therefore, we cannot claim damages for the mental upset that they cause.126 Again, Warren and Brandeis note that: our law recognizes no principle upon which compensation can be granted for mere injury to the feelings. However painful the mental effects upon another of an act, though purely wanton or even malicious, yet if the act itself is otherwise lawful, the suffering inflicted is damnum absque injuria.127

Thus, mental distress is recoverable in breach of privacy cases because it is a consequence of a breach of the right to privacy (ie, a legal wrong); mental distress is not, itself, the basis of the claim.128 This strand of analysis is evident in Gulati, where Mann J explained that distress is not required to successfully claim for breach of privacy in England.129 Rather, a plaintiff who could establish distress might be entitled to additional damages to reflect this harm. Arguing that distress should not be ‘the only touchstone for damages’, Mann J wrote: ‘While the law is used to awarding damages for injured feelings, there is no reason in principle, in my view, why it should not also make an award to reflect infringements of the right itself, if the situation warrants it.’130 In his view, the recognition of a right to privacy, in the Human Rights Act 1998 and elsewhere, required that there be some effective remedy for it, irrespective of any distress it might cause. Mann J noted, for example, that damages had been awarded for invasion of privacy to very young children, who clearly did not suffer consequential distress.131 Their claims were, thus, presumably based on the relevant violations of their rights. That said, Mann J’s application of these principles in assessing damages was less than instructive. For example, one of the plaintiffs in Gulati, Yentob, had his phone hacked several times a day for about seven years, but the information gained through the hacking

123

Warren and Brandeis (n 49) 205. also E Bloustein, ‘Privacy as an Aspect of Human Dignity: An Answer to Dean Prosser’ (1964) 39 New York University Law Review 962, where the author argues that Prosser was misguided in, among other things, identifying mental distress as the gist of the intrusion on seclusion tort. Bloustein preferred Warren and Brandeis’s view that recovery is based on a rights violation. 125 Nevertheless, if the defendant’s conduct is such that it is reasonably foreseeable that a person of ordinary fortitude would suffer recognisable psychiatric harm as a result, the plaintiff may be able to claim for the intentional or negligent infliction of psychiatric harm. 126 See Stevens (n 53) 52–53. See also G Keating, ‘When is Emotional Distress Harm?’ in S Pitel, J Neyers & E Chamberlain (eds), Tort Law: Challenging Orthodoxy (Oxford, Hart Publishing, 2013) 273. 127 Warren & Brandeis (n 49) 197. 128 See also Keren-Paz (n 92) 411, who argues that the plaintiff ’s mental distress, if any, on injury to his or her autonomy should result in greater damages. However, the absence of mental distress is not a bar to the claim. 129 See Gulati (n 7) [111]. 130 ibid (emphasis added). 131 ibid [114]–[117]. See, eg, AAA Associated Newspapers Ltd [2012] EWHC 2103 (QB) (photograph of oneyear-old child taken and published). This is similar to false imprisonment, which is actionable even if the plaintiff is unaware of it at the time (and thus suffers no distress). See P Giliker, ‘A “New” Head of Damages: Damages for Mental Distress in the English Law of Torts’ (2000) 20 Legal Studies 19, 27. 124 See

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was never published. Although his claim was, accordingly, for ‘snooping’, Mann J awarded him the rather extravagant sum of £85,000.132 Mann J related that the relevant phonehacking captured a vast amount of Yentob’s personal, social and professional conversation. On learning the extent of the hacking, Yentob indicated that he felt ‘appalled’, ‘invaded and sickened’, and expressed concern about how the hacking affected his family, his children, and his friends. He lost his sense of security in phone communication.133 Further, while the defendant apologised for its actions, the apology came less than a month before trial, and after the defendant had denied wrongdoing at the Leveson Inquiry into the phone-hacking scandal.134 While Yentob clearly and understandably suffered some mental distress, it was not quantified in any way; nor did Mann J indicate what portion of the damages award reflected the violation of Yentob’s privacy rights. Even assuming an equal apportionment between the rights violation and the consequential mental distress, an award upwards of £40,000 for unsubstantiated mental distress seems sufficiently large to demand some explanation.135 It is unfortunate that Mann J did not provide one. Thus, the relevance of mental distress in claims for intrusion on seclusion remains somewhat unclear. It is assumed on proof of the other elements of the tort; a plaintiff is not required to bring proof of mental distress in order to be successful. Nevertheless, a plaintiff who can establish mental distress will likely be entitled to additional damages. These could be assessed as part of the conventional award outlined in Jones, which is capped at $20,000 but which can include consideration of ‘any distress, annoyance or embarrassment suffered’ by the plaintiff. Alternatively, mental distress could give rise to substantial damages, if the reasoning in Gulati is followed.136 In either case, the treatment of mental distress in privacy cases seems rather privileged in comparison to its treatment with respect to other torts.

D. Other Possible Bases of Assessing Damages There are, of course, other bases on which the courts might assess damages for breach of privacy. One phrase that is often raised in breach of privacy cases is ‘harm to dignity’.137 This has parallels in the right to be free from unreasonable search and seizure by the state, which is firmly rooted in the concept of human dignity, particularly where bodily searches are involved.138 In the tort context, dignity is most obviously relevant in cases where the

132 This included a small, but unspecified amount of aggravated damages for the aggressive and hostile crossexamination of Yentob at trial: Gulati (n 7) [251]–[252]. 133 ibid [247]. 134 ibid [249]. 135 Especially when compared to the £15,000 conventional award for loss of reproductive autonomy in Rees (n 95). 136 This is consistent with Prosser’s analysis, which suggests that special damages could be recoverable if illness is proved. See Prosser (n 11) 409. 137 See, eg, Gulati (n 7) [108]; Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 AC 457 [51] (Lord Hoffmann); and Euteneier v Lee (2005) 77 OR (3d) 621 (CA). See also Bloustein (n 124), who posits that injury to human dignity is at the heart of the privacy tort. 138 See, eg, R v Dyment [1988] 2 SCR 417 (unauthorised use of accused’s blood sample). Cf R v Tessling 2004 SCC 67, [2004] 3 SCR 432, where the court found that a ‘heat’ picture of the accused’s home ‘scarcely affects’ his dignity. ibid [63].

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personal information is of an intimate or sexual nature,139 or is related to the plaintiff ’s healthcare.140 It seems less relevant in cases involving the plaintiff ’s Social Insurance Number or innocuous financial information. It cannot, therefore, be the general basis on which damages are awarded for snooping. Dignity is perhaps better considered as an aspect of the plaintiff ’s personal autonomy to decide whether, in what circumstances, and to what extent, he or she will expose his or her person or personal information to others. Warren and Brandeis argued along these lines, suggesting that breach of privacy is similar to other torts involving the person, such as battery and false imprisonment, which involve a sense of being ‘owned or possessed.’141 This is an injury to one’s ‘inviolate personality’.142 As Bloustein wrote: The fundamental fact is that our Western culture defines individuality as including the right to be free from certain types of intrusions. This measure of personal isolation and personal control over the conditions of its abandonment is of the very essence of personal freedom and dignity, is part of what our culture means by these concepts … He who may intrude upon another at will is the master of the other and, in fact, intrusion is the primary weapon of the tyrant.143

In other words, our dignity is eroded when our personal autonomy is violated. Since the two concepts dovetail in many cases, and since autonomy is moderately easier to quantify than dignity, it seems preferable to use autonomy as the basis for assessing damages. Two final considerations on which damages might be assessed in cases of harmless intrusion on seclusion are punishment and deterrence.144 In Jones, for example, Sharpe JA considered the defendant’s apology and remorse when assessing damages in the middle of the conventional range.145 A repentant defendant is less worthy of punishment, and is therefore subject to a smaller damage award. Similarly, class actions help to fulfil the goal of what the Supreme Court of Canada calls ‘behaviour modification’ for custodians of personal information who fail to treat it with proper security.146 Ideally, the threat of aggregate damages will encourage potential defendants to treat others’ personal information more carefully, especially in situations where individual awards might be too small to factor into the defendants’ cost-benefit analyses. Finally, punishment may be effected by aggravated and punitive damages, which are available in circumstances where the defendant’s behaviour is particularly egregious. However, this will presumably be rare in the situations governed by conventional awards, as egregious conduct is more likely to cause the plaintiff a loss in the conventional sense.147

139 See especially Mosley v News Group Newspapers [2008] EWHC 1777 (QB), which involved publication of the plaintiff ’s unconventional sexual practices. 140 See Hopkins (n 6). 141 Warren and Brandeis (n 49) 205. 142 ibid. 143 Bloustein (n 124) 973–74. 144 This also aligns with the purposes of damages under the Charter of Rights and Freedoms, discussed above. 145 Jones (n 2) [90]. Conversely, the lack of a genuine apology led to a higher damage award in Gulati (n 7). 146 See Condon v Canada (n 6), where the defendant failed to observe its own security measures. 147 See generally N Witzleb, ‘Exemplary Damages for Invasions of Privacy’ (2014) 6 Journal of Media Law 69. In so far as exemplary damages serve to strip the defendant of profits gained through invasion of privacy, they will only be available in cases where the defendant has published or otherwise misused the plaintiff ’s private information, and not in cases of mere snooping. See also N Witzleb, ‘Justifying Gain-Based Remedies for Invasions of Privacy’ (2009) 29 OJLS 325.

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IV. Conclusion This chapter has asked more questions than it has provided answers, which is perhaps to be expected when dealing with an emerging cause of action. Nevertheless, a few preliminary observations can be drawn from this survey of the bases on which courts have purportedly assessed damages for harmless breaches of privacy. First, damages are not always necessary to vindicate the plaintiff ’s rights, in the sense of symbolically affirming their importance, as there are often alternative remedies available for this purpose. This suggests that vindication cannot be the sole basis for these awards. Second, plaintiffs who establish emotional distress may be entitled to greater damages, but it is not clear whether this represents an additional ‘loss’ and thereby renders the intrusion a harmful, rather than harmless, tort. Finally, loss of autonomy provides the most workable basis on which to justify and assess damages for harmless breaches of privacy. It aligns well with the goals and mechanisms of privacy legislation, is analogous to other claims of ‘exclusivity’ in torts, and arguably provides a market value for the plaintiff ’s loss. It is not often that private law scholars get to witness the birth of a new tort and to influence its formative doctrine. The ongoing and rapid development of tort liability for breach of privacy presents a new and challenging forum for longstanding principles of rights and losses, and the purposes of damages for torts that are actionable per se. It will be our privilege to help elucidate these principles over the course of the twenty-first century.

20 Compensating Injury to Autonomy: A Conceptual and Normative Analysis TSACHI KEREN-PAZ*

I. Introduction In this chapter, I evaluate an increasing, albeit inconsistent tendency of courts across different jurisdictions to remedy injury to autonomy (‘ITA’), mainly in the tort of negligence, but also through consumer protection and contract law, thus recognising a protected interest in autonomy as a new type of substantive private interest. I will focus on scenarios similar to Bhamra v Dubb,1 in which a consumer unwittingly consumes food which he or she would prefer to avoid on ethical, or religious grounds.2 In engaging in this exercise, I aim to contribute to the debate both about whether ITA should be compensated generally in the various contexts in which it occurs, and whether it should be recognised as an actionable injury in the more specific context of personal choice to avoid eating certain types of food. Bhamra attended a Sikh wedding in a Sikh temple, at which food was served by the caterer Dubb, a Sikh himself. Observant Sikhs do not eat food containing eggs. Bhamra was aware that he had an egg allergy. Some of the ras malai that was served contained eggs, probably because the defendant purchased ras malai during the wedding from an outside source (the number of guests having exceeded expectation). Bhamra had an allergic reaction, was taken to hospital and eventually died. The trial court dismissed Bhamra’s widow’s personal injury claim, which was based on a breach of contract, but found in favour of her claim in negligence. On appeal, only the negligence claim was litigated, so the court felt a discussion of the correctness of the dismissal of the contractual claim was unnecessary. Liability in negligence was affirmed.3

* I would like to thank TT Arvind, Jonathan Hughes, Yossi Nehushtan and Max Weaver for very helpful comments on a previous draft, Francois du Bois and Assaf Jacob for helpful discussions, Kit Barker for superb editing and suggestions and Stella Coyle, Danisha Dawda, Dominique Hibell, Marianne Oludhe and Jenni Taylor for research assistance. 1 Bhamra v Dubb [2010] EWCA Civ 13. 2 US equivalents include Block v McDonald’s Corporation (No 1–03–1763, App Ct Ill, 2005); Gupta v Asha Enterprises LLC 27 A.3d 953 (NJ Super Ct App Div 2011); Popovitch v Denny’s Restaurant 2005 Cal App Unpub LEXIS 7173 (2005); Friedman v Merck & Co 107 Cal App 4th 454 (2003); Ellibee v Hiland Dairy Foods Co, LLC 166 P.3d 450 (Kan Ct App 2007). 3 Bhamra (n 1) [2], [10], [12], [25], [29].

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Stripped to its essence, the court’s analysis seems to make two propositions. The first is that the defendant owed Bhamra a duty of care not to offend his religious beliefs by negligently serving food containing eggs, despite the fact ‘that a restaurateur or caterer who is providing food for people who, as far as he is aware, are of no more than ordinary susceptibility does not owe them a duty to take reasonable care to prevent their suffering harm through eating egg’.4 This is so since ‘it was important to avoid the use of eggs for purely religious reasons’.5 ‘In those circumstances he was certainly under a duty to take reasonable care not to serve dishes containing egg in order to avoid offending against Sikh religious principles.’6 The court’s second proposition is that this duty could be extended under the circumstances to avoid Bhamra’s personal injury resulting from his egg allergy.7 While Bhamra sued only for the personal injury,8 the court’s first proposition, if correct, should allow all observant guests (including, potentially, the deceased)9 to receive compensation for the religious offence suffered from consuming ‘avoided’ food. As will be argued below, it is better to conceive of the obligation as one that is based on violating the claimant’s autonomy with respect to consumption of food, which has a bearing on both bodily integrity and freedom of conscience. Once the improbable aspect of the facts in Bhamra— the personal injury—is removed, Bhamra’s facts raise two, typical questions. First, ought the consumer’s interest in autonomy to be protected by a private law remedy? Second, if so, which cause of action should protect it: contract, or the tort of negligence? The analysis here will defend remedying ITA in negligence (with some reference to contractual analysis)10 in appropriate cases: where three constitutive elements of ITA (identified below) are present, and in relation to choices that are informed by one’s personal beliefs, ethics, values, attitudes and world view, or which have a significant bearing on the way one leads one’s life. The analysis includes a comparative component and I draw mainly on the unique and extensive protection of autonomy in Israel through the tort of negligence and consumer class actions. My goals are both conceptual and normative. Section II distinguishes between three types of ITA. These distinctions often elude courts, resulting in much confusion and inconsistency. I will focus mainly on cases of type 2: those in which a claimant is brought to an inferior state of affairs without his consent, and where the ITA is not consequent on violation of an already protected interest. Section III explores three constitutive elements of

4

ibid [19].

6

ibid [25].

5 ibid. 7 ibid.

8 Such a claim raises questions about the scope of liability for consequences. See T Keren-Paz, ‘Liability for Consequences, Duty of Care and the Limited Relevance of Specific Reliance: New Insights on Bhamra v Dubb’ (2016) 32 Journal of Professional Negligence 48. 9 Bhamra consumed eggs, which he wished to avoid on religious grounds and to which he was allergic. I will not discuss here whether his estate is eligible to collect also for the spiritual harm resulting from the ITA. Rather, I will focus on the paradigm case in which no physical injury is involved and the claimant is aware he consumed food contrary to his ethical beliefs. 10 Breach of contract is actionable per se. This notwithstanding, whether ITA could be recovered in contracts, as a form of non-pecuniary loss, is analogous to the question of actionable damage in negligence. For a fuller contractual analysis, and a more in-depth critique of the inconsistent manner in which courts protect the interest in autonomy in England, Israel and the US, see T Keren-Paz, ‘Compensating Injury to Autonomy: Three Sets of Confusions’ (unpublished manuscript).

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ITA—deprivation of meaningful choice; harm to one’s reliance (as opposed to expectation) interest; and irreversibility. Section IV sets out the normative justification for providing a remedy for type 2 ITA in appropriate circumstances. The standard, liberal account of autonomy, at least as applied to tort law, focuses on the ability to make choices simpliciter.11 The focus of this chapter is on a thicker notion of autonomy—protecting choices that are informed by one’s personal beliefs, ethics, values, attitudes and world view, or which have a significant bearing on the way one leads one’s life. The attempt to live by one’s values is at the core of autonomy and is what makes autonomy worth protecting.12 On this view, not all acts that affect choice are equal—choices that are closely connected with the attempt to live by one’s own values are more fundamental than those that are not, and, as such, deserve protection. Accordingly, interactions bringing the claimant to an inferior state of affairs by either undermining her world view, or significantly undermining the way she leads her life, deserve compensation in either negligence or contract law, even though the harm suffered is entirely non-pecuniary and non-corporeal.

II. Three Types of Injury to Autonomy At a very basic (and uninteresting) level, all breaches of obligation involve interference with the autonomy of the person to whom the obligation is owed. This is definitely the case with paradigmatic cases across the law of obligations: in a personal injury case, for example, making the claimant blind decreases her autonomy, as does breaching a contractual promise to sell her a car.13 The following typology will distinguish three types of injury to autonomy: (1) mere injury to autonomy (being deprived of the opportunity to consent to being moved from one state of affairs to another); (2) being moved without consent to a subjectively inferior state of affairs; and (3) autonomy loss consequent upon violation of a previously protected interest.

A. Type 1 In type 1 ITA, the claimant is deprived of the opportunity to consent to being moved from one state of affairs to another, although, had she been asked, she would have consented. Chester v Afshar14 provides a good example. Not being operated on was the claimant’s state 11 See, eg, P Cane, The Anatomy of Tort Law (Oxford, Hart Publishing, 1997) 234. Cf M Dan-Cohen, Harmful Thoughts (Princeton NJ, Princeton University Press, 2002) 125. For a different account of autonomy in contract law, which uses Raz’s political philosophy to critique Raz’s autonomy account of a passive and monist contract law, see H Dagan, ‘Autonomy, Pluralism, and Contract Law Theory’ (2013) Law and Contemporary Problems 19. 12 See section IV below. 13 The choice of remedy often reflects whether the legal system wishes to vindicate the claimant’s autonomy (control) or merely her welfare. See n 104 below. In particular, the common law’s contract default rule of damages (rather than specific performance) is commonly understood as concerned with welfare, not autonomy. But of course, other than the obvious point that sustaining a certain level of welfare is itself crucial to affect positive liberty, the breach negatively affects the promisee’s autonomy, for example by the need to find cover, and the inability to enjoy the benefit of the contract in the period between the breach until the dispute is resolved. 14 Chester v Afshar [2004] UKHL 41, [2005] 1 AC 134.

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of affairs prior to the defendant’s breach of duty. Being operated on, with the associated risk of injury, was the post-breach state of affairs. Since Chester would have agreed to the relevant procedure anyway, had she been warned of its risk,15 she could not afterwards complain of being moved to a state of affairs (being operated on) which she then deemed inferior to the pre-breach condition. Rather, her autonomy complaint was that she was moved from one state of affairs to another without her (informed) consent. So, even though the latter state of affairs was not inferior to the former, Chester’s autonomy was violated, since she was deprived of the opportunity to give an informed consent (or, put differently, of the option to deny her consent) to the procedure and its risks. Note that, in determining the choice of which Ms Chester was deprived, the comparison of the state of affairs before and after the interaction must be done ex ante, before she knows whether the risk associated with the procedure will materialise. This is so, since she needs to decide whether or not to agree to the suggested treatment without the benefit of hindsight. As far as she is concerned, the relevant states of affairs at the crucial point of choice are therefore either not being treated, on the one hand, or being treated with the possibilities of either being injured or not, on the other. This is the choice of which she was deprived. Note also that in most type 1 injuries (as in Chester), the post-intervention state of affairs would be deemed as ex ante subjectively superior to the pre-intervention position; but what matters, for the purpose of classifying it as a type 1 ITA case, is that it is not inferior (if it is, the injury is type 2). So a type 1 injury exists even if the claimant is indifferent as between the two states of affairs. Finally, had Chester known about the relevant risk prior to the operation from another source, her decision to undergo the procedure would have been autonomous, despite Afshar’s breach of duty to inform her. In such circumstances, if there were any justification for compensating Chester for Afshar’s breach of duty, it could not be based on ITA. It could only be justified on the basis of some distinct injury to her dignity, or on the basis of deterrence considerations.16 Normatively, I support compensating type 1 injuries, at least in the informed consent context,17 through the tort of negligence,18 and recently Clark and Nolan seem to do the same.19 In this chapter, however, I am concerned primarily with type 2 injuries, although I will have a few things to say on type 1 as well. 15

ibid [7]. See A Jacob, ‘Daaka—The Evolution of Injury to Autonomy’ (2012) 42 Hebrew University Law Review 5, 41–42. 17 The thicker concept of autonomy defended below does not preclude compensation for type 1 injury. It does suggest, however, that all other things being equal, the quantum for type 2 injury should be more significant, and that care should be taken before type 1 injury is compensated in other contexts. 18 T Keren-Paz, ‘Compensating Injury to Autonomy: Normative Evaluation, Recent Developments and Future Tendencies’ (2007) 22 Colman Law Review 187, 218. Type 1 is harder to justify and my conclusion was that, as long as the amount is not excessive, it could be justified from the following four perspectives: cognitive psychology findings about the regret effect; a distributive-egalitarian perspective; administrative and litigation costs; and the symbolic meaning of such entitlement. With the passing years, Israeli courts awarded increased amounts for type 1 injuries, the highest being NIS 250,000 (c £40,000) in CA 10611/07 Antebi v Ben-David (22.2.2011, Supreme Court). The desirability of such a development could be questioned. See Jacob (n 16) 83. It is also far from clear that type 1 injury should be compensated in the consumer context. See Y Proccacia and A Klement, ‘Reliance, Causation and Damage in Consumer Misrepresentation Class Actions’ (2013) 37 Tel Aviv University Law Review 7, 40–42; Jacob (n 16) 47–48. 19 T Clark and D Nolan, ‘A Critique of Chester v Afshar’ (2014) 34 OJLS 659, 688–91 (ultimately preferring a statutory compensation scheme). For reference to literature supportive of such awards, see Keren Paz (n 18) fn 117 and Jacob (n 16) fn 267. Cases awarding damages for type 1 injury include Lachambre v Nair (1989) 74 Sask 16

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B. Type 2 In type 2 ITA, the claimant is moved without consent to a subjectively inferior state of affairs. Examples from the case law include Bhamra,20 Rees v Darlington Memorial Hospital NHS Trust,21 and breaches of informed consent in which the patient would not have submitted to the procedure, had the full risks been properly disclosed, as in Montgomery v Lanarkshire Health Board.22 In Bhamra, all observant guests who consumed eggs suffered an injury to their autonomy, since they were misled to consume food which they would wish to avoid for religious reasons. This state of affairs—consuming eggs—is subjectively inferior to the one of not consuming eggs, and it was the caterer’s breach of duty that moved the guests from the superior to the inferior state of affairs without their consent. This encroachment upon their autonomy does not hinge on violating any other protected interest of theirs, such as causing them personal injury.23 The same conclusion holds when this example is analysed within a contractual framework. If a claimant finds that the food purchased and consumed, contrary to warranty, contained eggs, the autonomy loss from consuming the food is not consequential on harm to an already protected interest, so is of type 2. By contrast, the claimant already has a protected, contractual interest in receiving damages for his loss consisting in having paid for something worthless to him. To the extent that it is useful to conceive of this financial loss as ITA—given the opportunity cost of losing money—it is a type 3 injury.24 The diminished autonomy of a parent who has to raise an unplanned child as a result of negligent sterilisation (as in Rees)25 is another example. By definition, the mother who opted for sterilisation prefers ‘no extra child’ over having another child. The negligence significantly undermined her autonomy with respect to a very fundamental decision— reproduction—with long-term and significant effects on her remaining life. Yet, this injury to her autonomy was not the result of personal injury caused by the breach of duty.26 Any patient who can credibly convince the court that she would not have given her consent, had she been fully informed, has proven that she was moved to an inferior state of affairs and, in consequence, has suffered a type 2 injury to her autonomy. Such an injury is independent of the materialisation of any physical risk, so in principle (and subject to policy considerations), if such a risk did materialise, personal injury damages could be awarded

R 86 (Sask Ct of QB); Lugenbuhl v Dowling 701 So 2d 447 (La 1997); and Daaka v Carmel Hospital 53(4) PD 526 (Supreme Court, Israel, 1999). 20

Bhamra (n 1). Rees v Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2004] 1 AC 309. 22 Montgomery v Lanarkshire Health Board (Scotland) [2015] UKSC 11. 23 Bhamra himself also suffered physical injury as a result of his allergy. However, the ‘religious offence’ (to use the Court’s terminology) he suffered is additional to the physical injury and independent thereof. See nn 8, 9. 24 See n 122 below. 25 Rees (n 21). 26 Unwanted pregnancy could be considered a personal injury, although this is debated. Compare C Witting, ‘Physical Damage in Negligence’ (2002) 61 CLJ 189, 192–96 with J Conaghan, ‘Tort Law and Feminist Critique’ (2003) 56 Current Legal Problems 175, 190–92. However, while unwanted pregnancy and childbirth undermine the claimant’s autonomy, the interference with reproductive autonomy significantly exceeds these aspects to encompass all post-natal parental responsibilities, burdens (and joys). For those unconvinced by this response, the conventional award in Rees (n 21) [124] (Lord Millett) could be awarded also to the father who cannot pin his autonomy loss on interference with his bodily integrity. 21

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in addition to damages for ITA. If the risk did not materialise, damages for ITA could be awarded as a stand-alone remedy.27 However, there are four points to bear in mind. First, where the risk did not materialise, one needs to explain why the claimant deserves to be compensated, given the established rule that tort law does not compensate the claimant for being negligently exposed to risk. This will be done below.28 Secondly, the absence of physical injury (ie the success of the procedure) might affect the quantum of the type 2 ITA loss, especially if these damages are measured by the claimant’s distress.29 Obviously, such distress is likely to be higher if the risk materialised. Thirdly, if the risk did not materialise, the patient is likely to remain unaware of its existence (since, by definition, it was not something of which the patient was aware prior to the procedure). This would make a stand-alone claim rare, if not fanciful. Finally, where the risk materialised, the patient will also suffer from a type 3 autonomy loss, consequential upon the physical injury (discussed immediately below). Despite being conceptually separable, the question remains whether, for legal policy reasons, the type 2 loss in such a case should be considered as swallowed, and adequately compensated, by damages for the type 3 loss.30 Yearworth v North Bristol NHS Trust31 is another example of type 2 injury. Damages for mental distress were held to be available (subject to proof of factual causation) when the claimants learned that their sperm had been negligently destroyed by the defendant, which had undertaken to look after it with all possible care. The court based its conclusion on two factors: (1) characterising the relationship between the claimants and defendant as one of gratuitous bailment; and (2) applying to bailment the measure of contractual damages for mental distress that is available in cases in which an object of the contract was to provide peace of mind.32 Several aspects of the decision are worth mentioning. First, the defendant’s breach of duty obviously interfered with the reproductive autonomy of those claimants who did not regain their fertility. There is much to be said (on grounds of consistency) for the applicability of the type of conventional award granted in Rees, independent of damages for mental distress based on the bailment (although there is a need to examine whether the claimant could recover both). Second, and related, in applying Rees (and setting aside the questions whether a conventional award and the amount given by the court are appropriate)33 one needs to decide whether interference with a claimant’s reproductive autonomy by preventing him or her from becoming a parent is more, less, or equally serious as making him or her a parent against his or her will. One also needs to decide whether these harms are gendered, and if so, whether this ought to be reflected in the size of the award. Understanding the Yearworth litigation as based on interference with reproductive autonomy also casts doubt on the conclusion of the trial judge (not litigated on appeal) that the claimants were not entitled to damages for personal injury, other than in respect

27

cf Clark and Nolan (n 19) 689. Section IVC. 29 cf the position on type 1 injury in the seminal Israeli Supreme Court decision in Daaka (n 19). 30 See M Weaver, ‘Beyond Compensation: Vindicatory and Deterrent Functions in Battery and False Imprisonment’ (unpublished manuscript). The divergent views in several Israeli Supreme Court decisions on the matter are discussed in Keren-Paz (n 10). 31 Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37. 32 ibid [49], [56]–[58]. 33 For a negative answer to both questions, see Keren-Paz (n 10). 28

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of any psychological injuries, unless there was more than an even chance that a child would have been conceived by use of the lost sperm.34 Once the issue is framed as a matter of injury to autonomy, there is arguably no need to show on a balance of probabilities that the claimant would have had a child from the sperm, but for the breach of duty. Rather, what matters is that any claimant who did not regain fertility lost a valuable choice of paternity. Losing this choice is in itself an inferior state of affairs, requiring a remedy. It might be that the quantum of damages ought to be higher for a claimant who can show, on a balance of probabilities, that he would have fathered a child, but proof that there was ‘more than an even chance’ that he would have done so should not to be considered a constitutive element of the claim.35 Alternatively (but less convincingly, in my opinion), those who, on a balance of probabilities, would not have conceived a child could still sue for a type 1 injury—since they were deprived of the option to become a father, even though they would not have used that option. Third, Yearworth demonstrates well the distinction between distress (or psychiatric injury) resulting from the fear that one might not become a parent, and the loss of autonomy involved in the destruction of one’s chance to become a parent. The latter might produce its own distress, but is theoretically capable of being quantified independently of it. The results in a series of (mainly Supreme Court) Israeli decisions could also exemplify the actionability of type 2 injury in negligence.36 While these cases are usually understood as dispensing with the requirement of actionable damage as a constitutive element of the tort of negligence, they are better understood as compensating type 2 ITA.37 First in Jerusalem (Municipality) v Gordon38 the Supreme Court affirmed a decision that a notional duty of care existed where the claimant was detained for failure to pay parking tickets issued to him by the defendant after he was no longer the owner of the offending car, and after he had made this fact clear to the municipality.39 Shortly after, in Sohan v The State,40 a notional duty was found to exist where the alleged negligence of a police border patrol agent allowed the claimant’s husband to exit the country, notwithstanding a stay of exit order issued against him by the family court; this left the claimant incapable of getting a divorce.41 A notable aspect of this decision is that it extended the protection of autonomy beyond freedom of movement (as was the case in Gordon) to freedom to determine one’s personal status, which is a significant aspect of autonomy, and in circumstances in which the injury

34 Yearworth (n 31) [16]. The analysis was based on the assumption (which was ultimately rejected) that damage to stored sperm could be considered personal injury. 35 cf the discussion in section III below of ‘meaningful choice’ as a constitutive element of the claim. 36 For more detail, see Keren-Paz (n 10). 37 In other cases expanding the notion of actionable damage, the characterisation of the damage as ITA (in any meaningful way) is debatable. See CA 2034/98 Amin v Amin, PD 53(5) 69 (1999) (children suing an estranged father for severing all contact); Fam (Jerusalem) 13381/09 TS v HD (18.6.2013) (members of biological family identifying and contacting the claimant, who was adopted as a child). 38 CA 243/83 Jerusalem (Municipality) v Gordon, PD 39(1) 113 (1985). 39 Note that this expansion of malicious prosecution to negligent prosecution is similar to English courts recognising the damage stemming from false imprisonment as actionable in negligence: W v Home Office [1997] Imm AR 302; D Nolan, ‘New Forms of Damage in Negligence’ (2007) 70 MLR 59, 64–67 (discussing other cases). 40 CA 429/82 Sohan v The State, PD 42(3) 733 (1988). 41 In Israel, religious courts have sole jurisdiction on the personal status aspects of marriage and divorce; and according to Jewish law, in order to be divorced the wife needs to receive a divorce document (Get) from the husband. Moreover, Jewish law discriminates against women, in that had the claimant had children from another man while still married, they would not have been able to marry in Israel.

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is significant and lasting. Note also the similarity between the interest in autonomy in the contexts of marital status in Sohan, and of reproductive autonomy, which was partially protected in Rees. A second, remarkable aspect of Sohan is that it recognised a duty of care against a peripheral party (the police) for failure to avoid the infliction of the loss directly by the husband: the lost chance to effect a divorce in circumstances in which the claimant wished to get one.42 Significantly later, lower courts took the logical step and awarded damages in negligence against husbands who were ordered by the Rabbinical Court to give a divorce, but refused to do so.43 In such situations the husband has a duty to give a divorce but still has the power not to effect it.

C. Type 3 In type 3 injury, the claimant suffers autonomy loss consequent upon violation of a previously protected interest. Examples include Bhamra, and a patient losing her eyesight as a result of a procedure to which she gave informed consent, but which was conducted negligently. Bhamra himself suffered the ultimate autonomy loss—death—due to the breach of duty in serving him eggs to which he was allergic. This type of autonomy loss is dependent on the violation of a protected interest, bodily integrity, and is already compensated indirectly by pecuniary and non-pecuniary heads of damages. Similarly, the patient operated on negligently suffers an autonomy loss consequent on the personal injury—loss of vision. In the paradigm case in which a person sustains physical injury as a result of an operation to which she did not give her informed consent, one could distinguish between the autonomy loss consequent on the injury itself, which is a type 3 injury, and the loss from being operated on without informed consent, which is a type 2 loss. Migdal v Abu Hannah44 is an interesting Israeli case, in which the court specifically took the autonomy of a minor, Arab girl, who had been injured in a road accident, into account in deciding the appropriate quantum of damages.45 The Supreme Court held that the benchmark for calculating her loss of future earnings was the national (gender-neutral) average income, and not the (much lower) average income of Arab women. The Court’s reasons included respecting the girl’s right to write her own life story, which was understood as an issue of both her right to autonomy and to corrective justice.46 In calculating the dam42 Consider an English solicitor representing a Jewish religious wife, who fails in the decree nisi to procure a clause making the divorce conditional on the husband giving his wife a Get, with the result she is civilly divorced but cannot remarry according to her religion. Currently, the solicitor will be liable to compensate her for her distress (see n 75). But her loss would be better classified as a type 2 injury which should allow her to recover significantly higher damages. For reasons of space, quantum issues will not be covered here. 43 See eg Fam (Jerusalem) 19270/03 KS v KF, Tak-Fam 2004 (4) 353. 44 CA 10064/02 Migdal v Abu Hannah, PD 60(3) 13 (Supreme Court, 2005). 45 cf CA 11152/04 Ploni v Migdal, PD 61(3) 310 (2006), in which the Supreme Court rejected the claimant’s claim for the costs of hiring surrogates, based on the assertion that as a consequence of his injury, he was otherwise unable to achieve sexual gratification. The Court rejected the claim for lack of sufficient evidence that such loss had in fact been suffered. Justice Rivlin, however, with whom Justice Beinisch agreed in principle, reached the same conclusion based on public policy. The vast exploitation and coercion in the prostitution market made such an award inappropriate. This policy could be understood as concerned with the autonomy of those providing sexual services. For further analysis see T Keren-Paz, Sex Trafficking: A Private Law Response (Oxford, Routledge, 2013) 184–85. 46 Abu Hannah (n 44) [33]–[37]. Other reasons included the demands of distributive justice [38]–[40], relying in part on the author’s argument, and of efficiency [41]–[42].

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ages for the personal injury (a type 3 ITA manifested in the claimant’s reduced autonomy to write her life story), the court took into account the claimant’s autonomy interest by avoiding discriminatory assumptions about her earning capacity had she not been injured.

D. Borderlines Trespass torts and privacy raise taxonomical difficulties. Battery and false imprisonment have long been explained as protecting one’s interest in autonomy,47 a truism manifested by the fact that they are actionable per se. Misuse of private information (recently confirmed to be a tort)48 is likewise grounded in notions of personal autonomy.49 But is the loss of autonomy from the following behaviours consequent on the violation of a previously protected right (and therefore a type 3 loss) or not (so that it falls within type 2): being touched without one’s consent; being falsely imprisoned; having someone trespass on one’s land without permission; and having private information about one disclosed without one’s consent? On one understanding, the protected interests in these examples are, respectively, bodily integrity, freedom of movement, dominion over property and privacy, and the loss of autonomy is in each case consequential on the violation of these interests. On the competing understanding, however, the protected interests themselves are merely manifestations of autonomy.50 This is a difficult conceptual question to which I currently do not have a clear answer. Luckily, for the purposes of this chapter, no answer is necessary. The autonomy loss suffered in these causes of action is clearly actionable, so even if one commits to the view that, usually, type 2 injuries should not be compensated by the tort of negligence, contract and consumer protection law, the claimant’s right to be compensated for the injury suffered is not in doubt. This would be the case, whether the loss was classified as type 3 (which is routinely actionable), or as type 2, which is protected by specific torts. Moreover, while at times it is trite that infringement of a protected interest leads to ITA, at other times it is the understanding of the injury as concerning the thick concept of autonomy—as severely undermining the root of the victim’s identity and personhood— which best captures the wrong committed. In this sense, what is seemingly an ordinary type 3 injury is, at its heart, an ITA. In the context of sex trafficking, as for example in AT v Dulghieru,51 it is the undermining of the victims’ personhood, by forcing them into sexual labour and by objectifying them, which is so horribly and fundamentally wrong, so that shoehorning the victim’s experience into battery, false imprisonment and

47 J McLaren, ‘The Intentional Torts to the Person Revived? Protecting Autonomy, Dignity and Emotional elfare in a Pluralistic Society’ (2002) 1 Supreme Court Law Review 67; Lord Bingham, ‘Tort and Human Rights’ W in P Cane and J Stapleton (eds), The Law of Obligations, Essays in Celebration of John Fleming (Oxford, Clarendon Press, 1998) 1. 48 At least, for the purposes of service out the jurisdiction: Google Inc v Vidal-Hall [2015] EWCA Civ 311 [51]. 49 R (on the application of Catt) (Respondent) v Commissioner of Police of the Metropolis [2015] UKSC 9 [4]; Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 AC 457 [50]–[51] (Lord Hoffmann). 50 cf E Descheemaeker, ‘Solatium and Injury to Feelings: Roman Law, English Law and Modern Tort Scholarship’ in E Descheemaeker and H Scott (eds) Iniuria and the Common Law (Oxford, Hart Publishing, 2013) 67. 51 AT v Dulghieru [2009] EWHC 225 (QB).

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conspiracy52—all violations of recognised interests of type 3 ITA—fails adequately to capture the true nature of the wrong done.53 Elsewhere,54 with reference to another Israeli sex trafficking case,55 I have criticised the court’s reliance upon the seminal case remedying type 1 ITA in the informed consent context,56 as a basis for providing remedy to the victim. Resorting to a type 1 injury in the context of trafficking confuses the different meanings of ITA and trivialises the victim’s experience. Notwithstanding this critique, conceptualising the victim’s injury as mainly about the extreme denial of autonomy in the form of sexual enslavement is correct, and welcome. Much about the way Yearworth was argued and litigated could have led it to be classified as a type 3 injury, but I still believe type 2 is the more accurate classification. As long as one focuses on the characterisation of the sperm as property, one could see the damages for psychiatric injury, but also even the claim for distress, as damages for consequential loss flowing from interference with the claimants’ property rights. But the nub of the claimants’ complaint was not about the destruction of property, commonly understood. Indeed, the proposition (which I support) that the claimants have property in the sperm is novel and controversial, and the failed attempt to classify the destruction of the sperm as personal injury only goes to prove the point. The nub of the litigation was the lost chance to become a father (and the fear resulting from that loss, even if the claimant subsequently regained fertility) which is clearly a type 2 injury related to one’s reproductive autonomy. Had the Trust negligently failed to inform the claimants about the risk of infertility, or to offer storage of the sperm, there would have been no issue of ownership. The issue then might have been framed as one of personal injury: the inability to father a child, a consequence of the treatment, would have been avoided had there not been a breach of duty. Still, the real issue was the interference with the choice to become a father. The complaint in such a case is not that the treatment itself eliminated the claimant’s fertility. Rather, it is that the defendant did not take reasonable care to preserve the claimant’s ability to procreate, notwithstanding the non-wrongful, medical consequence of the treatment—the reduced fertility itself. This is a complaint about undermining the claimant’s reproductive autonomy, which is a type 2 injury. Indeed, the Court itself understood the claim in this way, by noting that the purpose of the arrangement was ‘the provision to the men of non-pecuniary personal or family benefits. Any award of damages should reflect the realities behind these arrangements and their intended purpose’.57 The context of lost fertility could also highlight differences between types 1 and 2 ITA. The two could be distinguished according to the extent to which part of the injury is consequential. A patient who lost his fertility as a result of an undisclosed risk of chemotherapy, but who would have submitted to the procedure, had he been warned, is in an inferior state of affairs, since he was deprived of the option to change his behaviour by freezing sperm prior to the treatment.58 Therefore, this injury is of type 2, despite the fact that the patient 52 ibid (conspiracy); Plonit (K) v Jaack, Tak-Meh 2006 (1) 7885 (2006) (District Court, 8 March 2006) (false imprisonment). 53 Keren-Paz (n 45) 143–44. 54 Keren-Paz (n 18). 55 K (n 52). 56 Daaka (n 19). 57 Yearworth (n 31) [57] (my emphasis). 58 cf cc (Haifa) 1593/95 Pravda v Shwakat, Tak-Meh 2003(3) 1186; Yearworth (n 31).

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would have eventually undergone the treatment, had he been warned. While the breach of duty did not increase the medical risk of infertility (assuming the patient would have undergone the chemotherapy, had he been warned),59 it did create a loss which would have otherwise been prevented. But even in cases in which a claimant would not have changed his behaviour, and therefore has no type 2 injury, we could distinguish between: (1) the distress caused from the fact that the physical injury came as a surprise (shock and surprise); (2) feelings of anger that he was subjected to a risk which materialised without his consent (even though he would have consented, if informed); and (3) an intrinsic loss from having been deprived of the choice whether or not to accept the risk, which is distinct from the distress caused by the breach of duty.60 In cases of type 2 injury, by definition, a consequence of the breach of duty is that the claimant finds herself in an inferior state of affairs. Therefore, the feelings of anger and surprise exist only due to the causal connection between the breach of duty and the claimant’s decision, which brought him to the inferior state of affairs. This distress is conceptually different from viewing ITA as intrinsically wrong and the infringement of autonomy as an injury per se, regardless of the consequential distress. Moreover, distress itself could be further broken down into distress from the undesirable state of affairs itself, and distress from the fact it was the defendant’s breach of duty which undermined the claimant’s autonomy. The quantum implications of such distinctions await further research.

III. Constitutive Elements An injury to autonomy deserving protection has three constitutive elements: deprivation of meaningful choice; harm to a claimant’s reliance (as opposed to expectation) interest; and irreversibility. I will look at these elements in turn. A meaningful injury to autonomy exists only when the claimant was deprived of a real choice to which he had the right,61 and which he was capable of exercising. All observant guests at the Sikh wedding in the Bhamra case had a choice whether to adhere to the religious restriction and avoid consuming food that contains eggs. Dubb’s negligence deprived them of such choice. By contrast, in many of the cases in which a protected interest was undermined, no such choice existed. We have already encountered the patient who gave his consent to treatment, but was injured due to clinical negligence. Such a patient suffers a

59

This proposition is explained in Keren-Paz (n 8). See Keren-Paz (n 18) and n 144 below. complications arise in the context of sexual autonomy where the defendant misleads the claimant about a characteristic which would have caused the claimant to avoid sexual contact with the defendant. In some cases at least, the ground for avoiding the defendant might be considered deplorable, but the claimant still has a right to ‘discriminate’. Whether there ought to be a private law remedy in such circumstances, and if so, whether in battery, deceit or negligence are difficult questions which I will not attempt to answer here. For discussion of equivalent questions in the criminal context of rape by deception, see J Rubenfeld, ‘The Riddle of Rape-by-Deception and the Myth of Sexual Autonomy’ (2013) 122 Yale Law Journal 1372; A Gross, ‘Gender Outlaws Before the Law: The Courts of the Borderland’ (2009) 32 Harvard Journal of Law and Gender 165; A Sharpe, ‘Criminalising Sexual Intimacy: Transgender Defendants and the Legal Construction of Non-Consent’ (2014) Criminal Law Review 207. 60

61 Special

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setback to an important interest, and the physical injury entails a type 3 loss of autonomy. However, the breach of duty did not deprive him of any meaningful choice, so no remedy for ITA should exist. Similarly, a person receiving urgent treatment while unconscious cannot complain of ITA, since she was not capable of exercising any choice. For this reason, the Israeli Supreme Court erred in Avnaal v State of Israel62 in compensating a company63 for ITA, based on the company being denied a hearing and given a misleading reason for not renewing its import permit, despite the fact that the refusal of the permit renewal was valid, and that the decision would not have changed, if a correct reason and a hearing had been given. The company was not deprived of any meaningful choice, since it was subject to the administrative power to withhold the permit. If it was deprived of any protected interest, this was therefore not an interest in its autonomy.64 Cases like Sohan,65 KS66 (both dealing with interferences with the possibility of getting a divorce) and Abu Hannah67 (interference with the possibility of pursuing a certain career path, due to personal injury) lie somewhere between Bhamra and Avnaal on the continuum of ‘meaningful choice’. According to the relevant divorce law, Jewish Israeli women do not have an enforceable claim-right to receive a divorce, and Rabbinical courts do not have the jurisdiction to effect a divorce without the husband’s consent, so even if the husband is under a duty to give a divorce, he can (at the pain of suffering sanctions for contempt) avoid doing so. So the claimant’s choice to divorce her husband has limited effectiveness. Still, the breach of duty prevents the claimant exercising her choice to effectively pursue a divorce, and is therefore meaningful. Similarly, there is no guarantee that, had Abu Hannah not been injured in the accident, she would have pursued a career, or been successful in attaining it. But the whole point behind awarding a child average income and ignoring gender and ethnic remuneration patterns in the market is to provide the child with the chance to exercise her own, individual choices, even if those do not conform with her gender and ethnic background. So, in Abu Hannah as well, the choice is meaningful, even though there is no guarantee that its exercise will be effective. This is similar to Bhamra, where each religious guest could have acted upon his choice, had the relevant information been available. The ‘meaningful choice’ account defended here, therefore, is more restrictive than Victoria Chico’s, which views the non-disclosure of relevant (genetic) information about the claimant as an intrinsic interference with the claimant’s autonomy which results in harm ‘even if it does not impinge directly on any decisions she makes’.68 On my account, if no decision could be made based on the information, the reasons (if any) to remedy

62

CA 1081/00 Avnaal v State of Israel, Pad-or 2005(1) 85. For a critique, see Keren-Paz (n 18) 210–13. It is also not evidently desirable to allow companies to sue for infringements of their autonomy. 64 Indeed, the holding (by majority) in Lumba v Secretary of State for the Home Department [2011] UKSC 12 is consistent with the critique of Avnaal, offered in the text. In Lumba, claimants who were falsely imprisoned based on unlawful policy recovered only nominal damages, since they could have been detained lawfully according to the published policy. For a different view, see A Twerski and N Cohen, ‘Informed Decision Making and The Law of Torts: The Myth of Justiciable Causation’ (1988) University of Illinois Law Review 607 (making an analogy between ITA and remedy for violation of the constitutional right to due process); cf CA 1303/09 Kadosh v Bikur Holim Hospital (Supreme Court, Israel, 5.3.2012) [43] (Rivlin J). 65 Sohan (n 40) 66 KS (n 43). 67 Abu Hannah (n 44) 68 V Chico, Genomic Negligence (Oxford, Routledge, 2011) 148. 63

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the ensuing harm are a matter of dignity, or deterrence, not autonomy.69 Our analyses are consistent, in that we both recognise that, even if medically there is nothing to be done, to the extent that the claimant was deprived of an opportunity to act on the information (what is sometimes referred to in the literature as preparedness)70, there is ITA. This, in my opinion, is what separates Avnaal71 from Tracey v Cambridge University Hospitals NHS Foundation Trust,72 in which the claimant was not (initially) informed of her DNR status. Turning to the reliance versus expectation distinction, there is a difference between failing to get what you had bargained for, and receiving something which is offensive to you. In the former scenario, the damage is loss of the benefit of the bargain. In the latter, the claimant is subjectively worse off in comparison to the pre-bargain state of affairs. In the contractual context, therefore, we can distinguish between receiving something which is (1) of inferior quality (which is what happened in Jackson v Horizon Holidays);73 (2) contrary to preference (a couple contracting for red tablecloths for their wedding, but receiving blue ones);74 or (3) offensive to one’s ethical belief (as in Bhamra). In deciding whether, and if so, by how much, to compensate for the breach, the following is relevant. First, when peace of mind is an important term of the contract, the distress from the thwarted expectation is actionable,75 so the distinction between thwarted expectation and ITA loses some of its importance, although the quantum might be different. Secondly, typically in these situations, the claimant paid for something she did not receive and received something she did not want. Unless the claimant has a reason to oppose what was received (for example, on ethical grounds), the question of autonomy is usually raised in the context of not having to pay for something you disvalue, rather than claiming damages for receiving something which offends you.76 Within restitution law, in which subjective devaluation lies behind the law’s refusal to order restitution for a benefit not freely accepted,77 an often overlooked distinction is between loss of autonomy resulting from any duty to pay for the unsolicited benefit, and loss flowing from the fact that the claimant’s actions in conferring what the market might regard as a ‘benefit’ have put the defendant in a position that is subjectively inferior to his pre-interference condition. The latter loss is akin to the reliance loss suffered in Bhamra resulting from being made to consume ‘avoided’ food. If I truly prefer a casual or neglected appearance, the person who brushes my shoes has done me no favour. In fact, the post-intervention state of affairs (wearing shiny shoes) is subjectively inferior to the 69

Keren-Paz (n 10). eg, G Laurie, Genetic Privacy: A Challenge to Medico-Legal Norms (Cambridge, Cambridge University Press, 2002) 122. 71 Avnaal (n 62). 72 Tracey v Cambridge University Hospitals NHS Foundation Trust [2014] EWCA Civ 822. For fuller discussion see Keren-Paz (n 10). 73 Jackson v Horizon Holidays [1975] 3 All ER 92 (CA). 74 See section IVA below. 75 Jackson (n 73); Farley v Skinner [2001] UKHL 49; Hamilton Jones v David & Snape (a Firm) [2003] EWHC 3147 (Ch); cf Johnson v UNISYS Ltd [2003] 1 AC 518 [70]. 76 However, this is not straightforward. In the wedding example, the issue is not merely not having to pay for the blue tablecloths the couple did not order (a task rendered difficult, as the contract is not likely to indicate the price tag on this service). It is also compensating them for the fact that their aesthetic preferences, and hence their wedding experience, was diminished due to the breach. 77 Benedetti v Sawiris [2013] UKSC 50 [18] with explicit reference to ‘the fundamental need to protect a defendant’s autonomy’. 70 See,

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re-intervention position, regardless of the fact I do not need to pay for the service because p I did not ask for it.78 Similarly, the person who bought me an appliance produced by a company or imported from a country I boycott for ideological reasons did me no service, whether or not I have any duty to pay for it. A friend of mine who taught poverty law at Osgoode Hall was horrified to find a limousine waiting to take her to the airport after class. Had this been a result of unsolicited upgrading (and assuming there were no issues of free acceptance, due for example to lack of time), the injury to her autonomy from having to use a limousine rather than a normal taxi is quite different from the price difference between the two services.79 Reversibility is the third constitutive element: did the breach merely put the claimant at risk of undermining her autonomy, or did it result in an irreversible ITA? The former scenario amounts to thwarted expectation; the latter to ITA. Had the observant guests been made aware that the ras malai might (or did) contain eggs prior to eating it, presumably they would not have consumed it. This might have caused them some disappointment, since they had an expectation (in the social, rather than the contract law, sense) of eating dessert at the wedding. But this would not have amounted to invasion of their autonomy. Moreover, under the scenario of detection prior to consumption, the bride’s father who contracted for egg-free food, but who was served ras malai containing egg, could undoubtedly have sued for distress,80 but whether or not what is awarded reflects an ITA is a matter of debate. This depends on whether the provision of ‘avoided’ food in the event (as distinct from its consumption) is a stand-alone religious transgression. What is clear is that, even if the award is partially based on injury to the host’s autonomy, in that ‘avoided’ food was provided, this is a different type of loss, and undisputedly lower in quantum, than the loss caused to the host whose guests consumed ‘avoided’ food. The reversibility of the state of affairs to which the claimant was subject due to the breach of duty should serve as an important factor in deciding whether the loss is actionable.81 This is separate from, although it relates to, the extent of the intrusion and the context in which it occurs (discussed below). For example, a misrepresentation by definition undermines the representee’s autonomy, since she entered the contract in reliance on it. But, to the extent that the contract could be rescinded, a plausible claim about ITA is hard to make, since the interference is reversible. So for example, if a Holocaust survivor boycotts German merchandise and is induced to buy a German-made TV due to misrepresentation, when he finds out that the TV is German he would be able to return the TV and get his money back. Under these circumstances, the injury from being induced to buy a German product ceases to be harmful, given the option to rescind the contract, and the injury from being induced to use it, or to have it at home, prior to finding out it is of German make does not seem to be significant enough to warrant compensation as a matter of injury to his autonomy. But the injury to the autonomy of any guest who consumed avoided food is irreversible. The 78

Taylor v Laird (1865) 25 LJ Ex 329, 332 (Pollock CB). In fact, a limousine is cheaper. While this example involves also fear of reputational loss, it involves an independent ITA. 80 I ignore here the question whether it is he, the guests, or neither who could sue for the guests’ thwarted expectation to have a dessert that their religion allows them to consume. This is discussed in the context of autonomy loss in Keren-Paz, ‘Confusions’ (n 10). 81 As was correctly appreciated by the Israeli Supreme Court in CA 8037/06 Barzilaay v Prinir Ltd (Supreme Court, Israel, 4.9.2014) [43]–[44] (Melcer J) discussed at n 122 below. 79

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fact that it was a discrete event goes only to the question of quantum; the injury itself is irreversible, as the avoided food was consumed. Irreversibility will help to explain below what distinguishes ITA, which ought to be actionable damage in negligence, from mere distress, which is not.

IV. Normative Justification In defending the appropriate scope (if any) of compensating ITA, three sets of questions present themselves.82 The first set concerns which decisions are to be regarded as autonomous and (relatedly) whether the inferiority of the post-intervention state of affairs has to be examined according to a subjective or an objective test. The second concerns which autonomous decisions we want to protect, which in turn depends on the question of why autonomy is valued. The third set of questions relates to the legal doctrines via which we would like to afford protection to ITA, if it is deemed serious enough to be remedied—in particular, ought we to use the tort of negligence for that purpose? Section A will briefly answer the first question. Section B will provide an initial account of the line dividing ITA that ought to be protected, and those which ought not. Section C responds to a recent argument by Craig Purshouse that ITA should not be protected by the tort of negligence.83

A. Which Decisions are Autonomous? (Subjective or Objective Test) The starting point for my analysis is the understanding of personal autonomy as selfauthorship. This account, most forcefully developed by Joseph Raz, (and others),84 is both normatively attractive, and influential in case law85 and legal scholarship.86 According to Raz, ‘the ideal of autonomy is that people should make their own lives’ and the ‘autonomous person is a (part) author of his own life … the vision of people controlling, to some degree, their own destiny, fashioning it through successive decisions throughout their lives’.87 Given this account of personal autonomy, it should come as no surprise that ITA types 2 and 3 are (and ought to be) identified according to a subjective standard. To take a few examples, a competent patient can refuse treatment even though his decision is deemed irrational. ‘This right … exists notwithstanding that the reasons for making the choice are rational, irrational, unknown or even non-existent’.88 Specifically, a physician who treats a

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A fourth question will not be discussed for reasons of space: how ITA should be measured. C Purshouse, ‘Liability for Lost Autonomy in Negligence: Undermining the Coherence of Tort Law?’ (2015) 22 Torts Law Journal 226. 84 See, eg, R Lindley, Autonomy (London, Macmillan, 1986). 85 Coleman v Attridge Law (A Firm) (C-303/06) [2008] All ER (EC) 1105 [9]; Abu Hannah (n 44) [33]. 86 Clark and Nolan (n 19) 677; Dagan (n 11). 87 J Raz, ‘Autonomy, Toleration, and the Harm Principle’ in S Mendus (ed), Justifying Toleration (Cambridge, Cambridge University Press, 1988) 155–56. 88 Re T (Adult: Refusal of Treatment) [1993] Fam 95 (although, in that case, the refusal was found to be based on duress from the mother, a practising Jehovah’s Witness); Re B (adult, refusal of medical treatment) [2002] 2 All ER 449. 83

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patient without the latter’s informed consent would be liable for the ensuing injury even if the expected harm from the no-treatment alternative is more significant.89 Note, however, that in the medical context, courts are employing at least three understandings of autonomy: a Kantian ‘ideal desire’; a ‘best desire’ reflecting one’s overall values; and ‘current desires’,90 so that by denying the patient’s capacity in cases where the decision to withhold consent to treatment is deemed irrational, courts might employ a more objective test for autonomy than their rhetoric suggests.91 Beyond refusal to receive urgent medical care, in which a subjective understanding of autonomy is pitched against ‘sanctity of life’ and best interests, other areas of private law clearly endorse a subjective test for autonomy. As previously mentioned, subjective devaluation is behind the law’s refusal to order restitution for a benefit not freely accepted.92 A couple who contracted for red tablecloths for their wedding but who had to endure blue ones would be awarded damages, despite the fact there is no objective superiority of ‘red’ over ‘blue’.93 As we shall see below, that one’s autonomy has been interfered with is not a sufficient reason to provide a remedy. But in most contexts of a type 2 injury, including food consumption, there is no real doubt that the claimant’s autonomy has been undermined. Autonomy as self-authorship is largely non-Kantian, since ‘autonomy is primarily a matter of authorship [while] rationality is essentially a matter of acceptability’.94 Indeed, over-emphasising rationality (and therefore an objective test for autonomy) is illiberal in nature, by prioritising a collectively-defined good over the individual’s right. Worse still, it is also distributively suspect: the rationality of the non-hegemonic is more likely to be questioned, and therefore their autonomy is more likely to be undermined.95 For current purposes, it is unnecessary to choose between the ‘best desire’ and ‘current desire’ understanding of autonomy. Choosing between the two is only required where a tension exists between a person’s current desire and her long-term, deeply held views (such as someone wishing she did not have a desire to smoke). Such tension is absent in many cases of type 2 (and indeed type 1) ITAs, including the hypothetical claim in Bhamra— both the current and long-term desires of the guests were to avoid consuming eggs. Similar to the ‘best desire’ view, however, I suggest that a remedy for ITA be available where the choice thwarted is based on deeply held values (or when it has a significant bearing on the way the claimant leads their life, as in Chester). It is debated whether the ideal of

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R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 55–56. Coggon, ‘Varied and Principled Understandings of Autonomy in English Law: Justifiable Inconsistency or Blinkered Moralism?’ (2007) 15 Health Care Analysis 235. Best desire theories are associated mainly with G Dworkin, The Theory and Practice of Autonomy (Cambridge, Cambridge University Press, 1988) and H Frankfurt, The Importance of What We Care About (Cambridge, Cambridge University Press, 1988). 91 Chico (n 68) 45. See eg Re MB (Medical Treatment) [1997] 2FLR 426. 92 Benedetti (n 77). 93 cf Diesen v Samson 1971 SLT (Sh Ct) 49 (wedding photographer not showing; damages for distress awarded). Whether the example in the text indeed reflects loss of autonomy in a meaningful way was discussed in section III above. 94 Lindley (n 84) 21. For further critique of Kant’s notion of autonomy see J Christman, ‘Constructing the Inner Citadel: Recent Work on the Concept of Autonomy’ (1988) 99 Ethics 109, 115. 95 See Coggon (n 90) 262 (noting judge’s empathy with claimant as determining whether the patient’s wishes will be respected); Keren-Paz (n 18) 228–35 (defending remedying type 1 ITA in the informed consent context based on its desirable egalitarian effect). 90 J

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self-authorship can be invoked to trigger a private law remedy for any setback to one’s choices and desires. To use Diana Meyers’ terminology, it is unclear that we ought to remedy violations of episodic autonomy, as opposed to programmatic autonomy.96 Arguably, Raz’s own conception of autonomy as self-authorship could be understood as programmatic rather than episodic (choice-centred). Remedying ITAs that undermine deeply held values—in which the choices undermined are positioned on the continuum somewhere between episodic autonomy, reflecting ‘thoughtless desire’,97 and programmatic a utonomy—protects the core of self-governance,98 so that ‘people can freely make up their own minds about what to believe and how to live, and can then act accordingly’.99 Similarly, if the effects of the thwarted choice are significant or lasting, they are more likely to affect programmatic, rather than episodic autonomy.

B. Which ITAs Should be Remedied? As a preliminary point, the decision whether to remedy ITA (be it type 1 or 2) relates to the question of whether autonomy has intrinsic, as well as merely instrumental value.100 The common account is that autonomy is important, both because it will lead to results which are more agreeable to the person making the decision, and because it is important for its own sake.101 This might suggest that in certain contexts (for example, informed consent) we might want to compensate for type 1 ITA, but this does not necessarily mean that we would want to compensate type 1 ITA in consumer contexts.102 This also means that whether a type 2 injury ought to be compensated, and if so, by how much, depends on how significant the ITA is, ie, to what extent it undermines one’s life plans and deeply held beliefs. That the instrumental value of autonomy is a matter of degree is uncontroversial, so if nothing else, the consequences of the ITA type 2 could serve to determine both whether there ought to be a remedy, and, if so, how much should be awarded in damages. The analysis in section III suggests that to be worthy of protection, ITA should, at a minimum, involve the denial of a real choice and subject the claimant to an irreversible, inferior state of affairs. But this does not mean that any such injury deserves a private law remedy.103 The context in which the interference with autonomy took place is also important. This is so, since the extent to which the legal system ought to respect one’s autonomy changes with the context.

96 D Meyers, ‘Personal Autonomy and the Paradox of Feminine Socialization’ (1987) 84 Journal of Philosophy 619, 624–25. A person is programmatically autonomous when she is carrying out a life plan (how do I want to live my life?) that embodies her own answers to a particular type of question (what kind of work do I want to do; do I want children? etc). In contrast, episodic autonomy entails being able to ask ‘what do I really want to do now?’ in a given situation. 97 See H Frankfurt, ‘Freedom of the Will and the Concept of a Person’ (1971) 68 Journal of Philosophy 5. 98 See Chico (n 68) 66, based on the influential accounts of Dworkin and Frankfurt (both cited in n 90). 99 A Voorhoeve, ‘The Limits of Autonomy’ (2009) 46 The Philosophers’ Magazine 78. 100 cf Chico (n 68) 66–70. 101 cf Clark and Nolan (n 19) 679. 102 See n 19 above. 103 The corollary is also true: a legal system might wish at times to compensate for a loss that does not have these constitutive elements, as in the case of thwarted expectations, or injuries which are not consequent on depriving the claimant of a meaningful choice. But such a remedy is not a response to a type 2 ITA.

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A look at the remedies available in different areas of private law demonstrates this point. In the law of property and restitution for wrongs, the different measures of recovery are partially based on the extent to which it is important to protect one’s autonomy (as distinct from welfare) with respect to the specific asset.104 This is justified by the distinction— supported by both Hegelian philosophy and empirical findings—between fungible and personal objects. The former have only instrumental value and therefore require only a measure vindicating one’s welfare. The latter require a measure vindicating one’s autonomy, and hence control over the object.105 A similar distinction explains the lesser protection afforded in tort law to economic loss (fungible) in comparison to property loss and personal injury, and the special protection afforded to the home,106 including the more extensive protection of privacy with regards to one’s home.107 Based on this insight (context-sensitivity in the extent to which autonomy ought to be vindicated), I argue that the type 2 injury in Bhamra deserves protection because it invokes both bodily integrity and freedom of conscience, both of which are central to one’s autonomy. Control over one’s bodily integrity is crucial to preservation of one’s autonomy. This is reflected in the protection afforded by the trespass torts,108 including battery, and, in the medical context, in the requirement that a patient’s informed consent be obtained.109 The holding in Chester, while opting for the wrong measure of recovery, was correctly based on the need to protect decisional autonomy in the context of bodily integrity.110 Jenny Steele has rightly commented on Chester that it ‘is poised awkwardly between the torts of battery and negligence, because the wrong is denial of self determination, rather than exposure to risk; but the harm is personal injury “by accident”’.111 The reason this is so is that subjecting someone to treatment without her consent is an affront to autonomy and dignity—values which were traditionally protected by battery. Similarly, providing someone with food he would not have eaten but for a misrepresentation (including a misrepresentation by omission, where the claimant had a reasonable expectation of not being served a certain type of food) is a serious interference with his autonomy which warrants damages.112 Control over one’s body is important not only in the medical context, in which irrational refusals of treatment, such as those of Jehovah’s Witnesses, ought to be respected113 but also 104 G Calabresi and A Melamed, ‘Property Rules, Liability, Rules, and Inalienability: One View of the Cathedral’ (1972) 85 Harvard Law Review 1089 and H Dagan, Unjust Enrichment (Cambridge, Cambridge University Press, 1997); C Rotherham, ‘The Conceptual Structure of Restitution for Wrongs’ (2007) 66 CLJ 172 193–96. See also n 13 above. 105 Dagan (n 104) 40–49, 63–70, 107. M Radin, ‘Property and Personhood’ (1982) 34 Stanford Law Review 957; J Jones, ‘Property and Personhood Revisited’ (2011) 1 Wake Forest Journal of Law & Policy 93. 106 Radin (n 105) 991–1000; L Fox, ‘The Meaning of Home: A Chimerical Concept or a Legal Challenge?’ (2002) 29 Journal of Law and Society 580; Conceptualising Home: Theories, Laws and Policies (Oxford, Hart Publishing, 2006); cf Smith v Bush [1990] 1 AC 831 (special protection for economic loss suffered with respect to valuation of property for dwelling purposes and of modest value). 107 McKennitt v Ash [2006] EWCA Civ 1714 (even disclosure of trivial facts about the claimant’s home is enjoined). 108 See n 47 above. 109 Chester (n 14); Montgomery (n 22). 110 Discussed further in Keren-Paz (n 10). 111 J Steele, Tort Law, Text Cases and Materials (Oxford, Oxford University Press, 2007) 63 (the same point is phrased slightly differently in the 2nd edn at 64); cf Clark and Nolan (n 19) 685–58. 112 See Prinir (n 81). 113 See n 88 above.

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in the consumer context. The refusal to consume non-vegetarian, non-vegan, non-kosher, or non-halal food for religious or ethical reasons should be respected, even if it is deemed irrational. Control over one’s body encompasses also what one eats, so causing someone through misrepresentation to eat food they oppose on whatever ground, all the more so on a strongly held ethical or religious belief, is on the same scale (albeit much further down) as force-feeding a prisoner. Both the Jehovah’s Witness example and Bhamra also invoke freedom of conscience, not only bodily integrity. Ethical (including religious) beliefs comprise a big part of one’s conscience and are political in nature; therefore their protection is essential to one’s autonomy, as is evident from the protection afforded them in human rights frameworks.114 These beliefs pertain to the core of the interest in autonomy115 as they provide reasons, for those holding them, to make meaningful choices. Constitutional law jurisprudence relating to core and peripheral forms of freedom of expression (such as, respectively, political and commercial speech)116 might be instructive in explaining why ethical beliefs ought to be protected from negligent interference. If the above analysis is correct, violating the decisional autonomy of an observant guest not to eat eggs involves two different aspects: freedom of conscience and bodily integrity. Each aspect justifies a private law remedy for its violation. To appreciate the importance of context (core versus peripheral violations of autonomy) consider the following examples, in which the claimant’s autonomy is undermined due to a breach of duty (usually, but not always, in the form of misrepresentation): (1) the shoes the claimant orders as a gift for his friend are produced by Nike, despite the claimant’s ethical stance that Nike should be boycotted due to sweatshop exploitation; (2) the holocaust survivor unwittingly using a German TV;117 (3) the vegan finding out that the lantern or shoes he bought contain(s) leather, or that the quiche he consumed contained meat; (4) the patient treated without first securing her informed consent; and (5) the political prisoner being force-fed after a hunger strike.118 These examples are organised in increasing order of interference with the claimant autonomy.119 Why is that so? In the first example, the claimant’s autonomy as a consumer was compromised. He has bought a product from a company he would rather avoid for ethical reasons. However, it 114 European Convention on Human Rights, Art 9; Equality Act 2010 (UK), s 10. On the relationship between conscience and autonomy, see S Smith, ‘The Phases and Functions of Freedom of Conscience’ in J Witte and C Green (eds), Religion and Human Rights: An Introduction (Oxford, Oxford University Press, 2012) 155, 163–64. While this relationship is complex, it seems indisputable that if the claimant was misled to act against their conscience—without being aware of that fact due to the defendant’s misrepresentation—the claimant’s autonomy was severely violated. 115 That actionable ITA has to undermine the core of autonomy (understood mainly as control over one’s body) was emphasised in several Israeli Supreme Court decisions: Prinir (n 81) [44] (Melcer J); Kadosh (n 64) [39], [42] (Rivlin J, obiter) (injury to hard core of autonomy and substantial issue as conditions for actionability of ITA). 116 Markt Intern Verlag GmbH and Klaus Beermann v Germany [1989] 12 EHRR 161; Ohralik v Ohio State Bar Ass’n 436 US 447 (1978). 117 See text following n 81. 118 See Secretary of State for the Home Department v Robb [1995] 1 All ER 677. In the force-feeding example, the injury to autonomy is of type 3 and protected by the tort of battery. In all examples, claimants ought to be compensated for the interference with their autonomy, unless there is a right to rescind the contract and the product was not consumed. It could be queried whether there should be compensation for the use in the case of the German TV, if the transaction could be rescinded after the TV has been used. 119 For purposes of quantum, additional factors are relevant for determining the overall ITA, such as the duration of each interference with autonomy.

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was not he who used the product, so a different aspect of his autonomy, not to use a product he would rather avoid, was not compromised. The holocaust survivor both paid for, and used, a product she would rather avoid, but the product does not contact her body, so her bodily integrity is intact. The same is true for the vegan buying a lantern. Shoes are worn on the body, so the vegan buying leather shoes pays, consumes and touches a product he would rather avoid. This is true also where the vegan eats quiche containing meat, but here the contact is more intrusive, since it enters the body. Such an invasive contact with the body also typically exists in example four (treatment without informed consent) and necessarily exists in example five (force-feeding). What makes these intrusions more harmful to one’s autonomy is the direct involvement of other individuals in invading the claimant’s bodily integrity (both examples) and the fact it is done by force and is humiliating (and painful) (example five). Ethically based preferences for avoiding consuming certain food (or other products and services) are important, and religious-based preferences, as in Bhamra, are no exception. Such preferences, religious or not, are certainly subjectively important to those holding them and reflect deeply held values. A liberal society, which prioritises the right over the good and is committed to respect individual autonomy, is bound to protect such preferences from careless interference, regardless of whether or not these beliefs are ‘objectively’ reasonable. One might also add that, in a society proclaiming to be multicultural, the case for protecting such preferences becomes even stronger. I share the court’s starting point in Bhamra, that the initial burden should lie with the person holding such beliefs to inquire whether what they are served does not offend their beliefs.120 But in circumstances where the consumer has a legitimate expectation not to be served a food item which offends her belief, but is nonetheless so served, a remedy should lie. So a person served meat in a vegetarian restaurant (or consuming a product containing meat, when the label suggests otherwise); non-kosher meat in a kosher butchery, or ras malai containing egg in a Sikh temple, should receive compensation, at least if the breach of the obligation not to offend her ethical belief involved fault. In a typical scenario, the obligation and its breach would be in a contractual and consumer setting, a point rendering the question of whether the preference is reasonable or idiosyncratic even more moot. Clearly, if the seller undertook an express or implied warranty that the product was made in a certain way, or free from a certain ingredient, that would be the end of the matter, and the breach would entitle the claimant to damages for the distress caused from consuming the avoided food, however idiosyncratic the preference was. Similarly, if a negligent (or fraudulent) misrepresentation were made, the claimant could recover damages for her distress even if the presentation did not amount to a warranty.121 Only a belief whose satisfaction involves rendering the contract void as contrary to public order would (probably) shield the representor from a duty to compensate the consumer for the misrepresentation. But this is fanciful. In all the examples mentioned

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Bhamra (n 1) [22]. Saunders v Edwards [1987] 1 WLR 1116 (damages for distress in deceit); Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA) (the measure of damages for negligent misrepresentation under s 2(1) of the Misrepresentation Act 1967 is that available in deceit). Even if it is unjustified to apply the more liberal remoteness rule in deceit (directness) to negligent misrepresentation, it is still justified to compensate the misrepresentee for her distress resulting from the misrepresentation. 121

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throughout this chapter, the consumer has a legitimate interest in not being served food contrary to her ethical beliefs. A subset of claims in this category involve serving an observant Jew non-kosher food122 or an observant Muslim non-halal meat. Kosher and halal slaughtering is itself at the centre of an ethical debate, accused of being a cruel method of slaughter.123 But as long as in the relevant jurisdiction the consumption124 of such meat is permitted, a defendant who served non-kosher food under circumstances in which it was reasonable to assume he would not, ought not to be heard to say he is not liable on account of the ‘unreasonable’, ‘unethical’ or ‘idiosyncratic’ nature of the belief. Those who oppose kosher and halal slaughter are free not to consume it, but those who would like (and are allowed) to consume it should be protected from consuming non-kosher or non-halal meat unwittingly.

C. Protecting ITA in Negligence125 When an injury satisfies the constitutive elements (so amounts to an ITA) and is significant enough, the question remains how it should be remedied. More specifically, ought it to be remedied by the tort of negligence?126 Recently, Craig Purshouse has answered this question in the negative, providing a coherence-based argument. First, he argues that ITA cannot be considered actionable damage ‘in a way that is consistent with established principles’. Secondly, even if ITA could be actionable damage, he says that recognising a duty of care to avoid it would undermine the restrictions limiting recovery for psychiatric injury and economic loss.127 Autonomy cannot coherently be considered actionable damage since actionable damage has to be assessed objectively, while ITA is subjective in nature, since some injuries to autonomy would be de minimis, and since autonomy is indivisible. Coherence requires that either all ‘interferences with autonomy can constitute actionable damage or none can’.128 I disagree, and find several problems with this argument. At heart, we disagree on the weight that should be given to coherence and consistency as values to be balanced against

122 Prinir (n 81) (certifying a class action against defendant selling products as ‘Kosher for Passover’ under the regional Rabbinical supervision, despite a known concern raised by regional Rabbinical authority that the products might not be kosher for Passover. Claimants who consumed the product prior to discovering the doubts about the product being kosher could sue for ITA and for the price paid. Claimants who bought the food but found out about the doubt before consuming it could sue only for the price but not for ITA.) 123 ‘Halal and Kosher slaughter “must end”’ (BBC News, 10 June 2003), http://news.bbc.co.uk/1/hi/uk/2977086. stm; V Paisner, ‘Jewish Exemption from Humane Slaughter Legislation’ (2004) 11 University College London Jurisprudence Review 1. 124 This is important. In Norway, kosher slaughter is forbidden, but consumption of imported kosher meat is allowed. A Lunga, ‘Butchery Law with Anti-Semitic Roots’ (Scientific Nordic, 6 November 2013), http://sciencenordic.com/butchery-law-anti-semitic-roots. Even in Norway, then, a consumer of kosher meat should be allowed to sue if supplied with non-kosher meat due to misrepresentation or contrary to a warranty. 125 Despite the focus on negligence, I will also discuss briefly towards the end the distinction between distress and ITA in the contractual context. 126 Elsewhere (Keren-Paz, (n 10)) I argue that English law does recognise ITA as actionable damage, albeit inconsistently. This section argues normatively that it ought to do so. 127 Purshouse (n 83) 228. 128 ibid 234–39.

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the promotion of fairness and of desirable social goals.129 So, even if I were to concede that recognising ITA as actionable damage is incoherent (which I dispute) I would still not see this as a sufficiently cogent reason not to remedy ITA when this is mandated in order to achieve just results. As I have argued elsewhere ‘it would be most unfortunate if, in the twenty-first century, the clanking chains of concepts replaced those of the forms of action in the path of justice’.130 The proof of Purshouse’s theoretical pudding is in the eating, and if his analysis leads him to view the compensation given to Rees as undesirable,131 this causes me to greatly doubt its attractiveness. It is instructive that for Purshouse, the fact that autonomy can be protected by trespass torts and (more implicitly) contracts is not a reason to protect it through negligence, and is perhaps even a reason against doing so.132 But Ms Rees will find little solace, while discharging the parental responsibilities imposed on her by the defendant’s negligence, in knowing that autonomy is protected in English law by trespass and contract law causes of action, none of which is available to her under the circumstances. The knowledge that the denial of remedy ensured coherence—real or imagined—in the law of negligence is likely to console her even less. But Purshouse fails to convince that remedying ITA cannot be done coherently. The proposition that the tort of negligence never remedies subjective losses is incorrect. In the medical context, if the defendant failed to obtain the claimant’s informed consent, there would be liability for the materialisation of the risk, even if the treatment was non-elective and objectively conferred more benefit than harm.133 In wrongful conception cases, damages for pain and suffering from pregnancy and labour are available despite their subjective character—these are not considered losses when the pregnancy and birth were voluntary.134 Part of the problem in Purshouse’s analysis might be a conflation of the questions of the existence of ITA and its quantum. The former has to be determined according to a subjective test. Whether one should compensate for the injury (ie whether it is serious enough to merit monetary relief and if so, how much) might involve a more objective evaluation.135 Purshouse, of course, acknowledges that some ITA could be considered to exist even applying an objective standard; but he says that remedying these instances, but not others, is misconceived, since autonomy per se (as opposed to the consequences of undermining it) is indivisible. Therefore, the decision to remedy only some forms of ITA, but not others, would be arbitrary.136 One might think that this approach shifts the debate from substance to terminology, for if Purshouse is happy to compensate Rees for her loss and regards this as a permissible protection of autonomy as ‘instrumentally important’

129 It is telling, that even Ernest Weinrib’s own account of standard of care analysis, which is supposedly monist and ‘coherent’, has to accommodate welfare considerations in what Bruce Chapman calls conceptually sequenced argument. See B Chapman, ‘Law, Incommensurability, and Conceptually Sequenced Argument’ (1998) 146 University of Pennsylvania Law Review, 1487, 1521–26. Weinrib’s account of Bolton v Stone [1951] 1 All ER 1078 (HL), and of English law, however, is erroneous. See Keren-Paz (n 45) 183 (noting that Lords Normand (1082e-f) and Radcliffe (1087e-g) based their decision on the traditional balancing approach and that even Lord Reid’s view could be understood to be based on a balancing approach). 130 Keren-Paz (n 45) 142. 131 Purshouse (n 83) 248 (but cf ibid 239). 132 ibid 236, 240. 133 Stevens (n 89). 134 cf Witting (n 26) 193–94. 135 See Gulati (n 144) and accompanying text below. 136 Purshouse (n 83) 239–40.

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(rather than an incoherent protection of autonomy per se), so be it.137 But Purshouse believes Rees was wrongly decided.138 Purshouse’s framework (following the case law) does not distinguish between types 1 and 2 ITA: this is evident from his treatment of Chester (type 1) and Rees (type 2). It is therefore hard to assess the correctness of his claim that autonomy is indivisible. But the fact remains (and Purshouse seems to concede) that the consequences of ITA can easily be assessed as more or less serious to the same extent that property damage and personal injury can. Being locked up for an hour is less serious than being locked up for a year, and having to dress for one’s wedding in a pair of shorts is more serious than having to forgo a tie. So why is remedying these consequences incoherent? Moreover, I would urge caution before jumping to the conclusion that type 1 ITA (epitomising autonomy as ‘intrinsically valued’) is indivisible in the way suggested by Purshouse. The more important the choice of which the claimant was deprived (compare choices about whether or not to become a parent with whether to have a red or a blue tablecloth at a party), the bigger the ITA 1 seems to be, whether measured by reference to the ensuing distress or not. Indeed, the fact that ITA is a matter of degree—pace several philosophical accounts139—is not only common sense, but also acknowledged in the case law,140 and in the literature.141 Purshouse also overstates the significance of battery being a tort actionable per se as a justification for relegating the task of remedying ITA to battery, to the exclusion of negligence.142 After all, if no damage can be demonstrated, only nominal damages will be awarded in battery and false imprisonment cases; and in order to award substantive damages, there is a need to assess the extent of the ITA:143 if this could be done in battery, why can it not be done in negligence? Furthermore, Purshouse fails to appreciate the harm involved in type 1 ITA. That the resulting state of affairs is not inferior does not mean that the claimant has not suffered a setback to her interest—in self-authorship—nor that (and this is a different matter) this setback cannot be measured objectively. If autonomy is valuable not only instrumentally (because it is likely to lead to results more palatable from the claimant’s perspective), but also intrinsically (because self-authorship is a worthy way to live one’s life, and/or because one is likely to be more satisfied if one authors one’s life), being deprived of the opportunity to make an informed decision is a setback to that interest. The loss could be assessed by a subjective test (distress or anger caused by the breach), a mixed test (how a reasonable person would have reacted to the breach), an objective test (viewing the right to decide as having objective value and compensating for its loss even if the claimant did not suffer

137 Indeed, the types 1/2/3 ITA (and the two aspects of type 2 injury) classifications presented above are based on the same distinction. Cf Keren-Paz (n 18). 138 n 131 above. 139 See, eg, S Macedo, Liberal Virtues (Oxford, Clarendon Press, 1989) 208–10. 140 Campbell v MGN Ltd [2004] 2 AC 457 [51] (Lord Hoffmann); HCJ 77/02 Ma’a’daney Aviv Osolovsky Ltd v The Chief Rabbinate Council, PD 56 249, 276 (2002, SC, Israel) (Cheshin J) (it is self-evident that misrepresentations about the characteristics of a pencil or the percentage of fat in a cheese are less serious than a misrepresentation about whether the food is kosher). 141 Clark and Nolan (n 19) 679; Meyers (n 96). 142 Purshouse (n 83) 233, 236, 240. 143 Lumba (n 64); Richardson v Howie [2004] EWCA Civ 1127.

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distress as a result of the type 1 ITA), or via a combination thereof.144 This ITA remains, even if, in the variation of Chester discussed by Purshouse,145 the risk does not materialise. True, physically speaking, the patient is better off, but the same physical result would have been achieved (albeit with a slight delay) had the decision been informed, so the breach still caused a setback to the patient’s autonomy. As the previous discussion of Yearworth demonstrates,146 preventing someone from having a child is interfering with his or her autonomy, even if that person would have chosen not to become a parent. Purshouse misses the value of choice, of having an option.147 Options in the commercial context have a clear economic value. The option whether or not to become a parent is also valuable (although mainly from a non-economic perspective); interestingly, the social meaning of not being a parent also changes, whether it results from a decision by the would-be parent, or due to circumstances beyond their control.148 More generally, ITA type 1 (or 2) might be de minimis and therefore not worthy of protection.149 But it does not follow that ITA 1 (let alone ITA 2, conflated consistently with type 1 in Purshouse’s analysis) ought not to be actionable damage. Indeed, many of Purshouse’s arguments become more convincing if understood as reasons to assess the loss as small and, at times, to conclude that, for legal policy reasons, the losses ought not to be compensated, rather than as reasons against recognising ITA as actionable damage. Purshouse’s duty of care argument against compensating ITA in negligence is equally unconvincing. First, if, indeed, the limitations on recovery for psychiatric injury and economic loss are unjustified, the coherence argument ought not, pace Purshouse, to prevent us from recognising a duty of care for ITA. Secondly, Purshouse is correct that autonomy is indirectly protected by the tort of negligence, whenever another interest is protected (including the limited protection against suffering psychiatric injury and economic loss).150 Indeed, this is the essence of a type 3 injury. But it does not follow that claimants ought to be allowed to bypass existing limited duty rules by reframing their claim as ITA, as he fears.151 To succeed in a type 2 standalone claim, the claimant needs to show that the three cumulative constitutive elements of the claim are present. In many cases of psychiatric injury (for example, witnessing the injury of a loved one) and economic loss (such as relational loss) the claimant is not deprived of any meaningful choice and therefore cannot have a freestanding claim for ITA. As far as type 3 injury is concerned, by definition, it will be protected to the extent that the underlying interest (damage to property, personal injury,

144 Space constraints prevent me from analysing quantification in more detail here. Note, however, that in Gulati v MGN Ltd [2015] EWHC 1482 (Ch) (aff ’d [2015] EWCA Civ 1291 (CA)) privacy was treated as both intrinsically and instrumentally important, so could be compensated regardless of the distress caused, with separate compensation for some claimants for the distress caused. 145 Purshouse (n 83) 237. 146 Section IIB. 147 Purshouse (n 83) 238. 148 For the relevance to quantum of the choice not to become a parent, see section IIB above. 149 Being temporarily locked up without being aware of it (Purshouse, (n 83) 237–38 seems indeed to be a case which does not warrant damages. But it is not clear that the claimant was deprived of any meaningful choice in this example. This example is quite different from Chester, in which the claimant was deprived of making an informed decision on an important matter with long-term implications on her health and bodily integrity. It is even further removed from Rees, which was a type 2 ITA. 150 Purshouse (n 83) 232. 151 ibid 243, 245.

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economic loss and psychiatric injury) is protected, so no undermining of existing limited duty rules is possible. Moreover, as the discussion in the previous section demonstrates, even where the three constitutive elements are present, whether the ITA should be remedied is a matter of policy, not logic, so concerns about imposing liability could therefore be accommodated doctrinally by refusing to impose a duty on the basis that it is not fair, just and reasonable to do so. This goes back to my basic disagreement with Purshouse’s claim—which echoes some philosophical accounts of autonomy—that any attempt to distinguish between more and less serious violations of autonomy is impossible, meaningless or at least arbitrary.152 Once it is accepted that one’s ability to write one’s own life story could be undermined to different extents, and that the importance of remedying such interferences changes with the context, the focus should shift to the question how to demarcate, in sufficiently ‘specific and narrowly defined’153 ways, the line between ITA which ought to be remedied and that which ought not. This was done in section II above. I will turn now to explaining why ITA is different from mere distress, so that it can be compensated, even while maintaining the position that mere distress is not actionable in negligence. The court in Bhamra held that Dubb ‘was certainly under a duty to take reasonable care not to serve dishes containing egg in order to avoid offending Sikh religious principles’.154 This proposition, described as ‘preposterous’ by Janet O‘Sullivan in her short case comment,155 is definitely unorthodox. According to orthodoxy, the damage caused by the defendant’s negligent act needs to be of a certain type and of a certain degree in order to be actionable.156 Physical injury and property damage are at the core of the protection afforded by the tort; psychiatric injury and economic loss are on the periphery. The following forms of damage are not actionable in negligence as the sole (or threshold) damage: mere distress; inconvenience or discomfort which does not result in bodily or psychiatric illness;157 offence by things said with the intention of causing distress and humiliation;158 fear (not amounting to psychiatric injury) from being negligently put in danger;159 fear of exposure to risk yet to materialise;160 and psychiatric injury consequent on such exposure.161 It is unclear whether psychiatric injury consequent on destruction of property not witnessed by the owner is actionable162 (although the latter could be understood as an issue of scope of duty, rather than actionable damage).163

152

See nn 129–132 above. Purshouse (n 83) 241. 154 Bhamra (n 1) [25]. 155 J O‘Sullivan, ‘From Snail to Egg: Duty of Care, Fault and Food Allergies’ (2010) 69 CLJ 435, 437. 156 Both authority and literature often gloss over the question of what constitutes actionable damage; sometimes the issue is discussed as part of the duty of care; at times it is (rightly) treated as an independent inquiry. See Nolan (n 39) 61. 157 Hunter v Canary Wharf Ltd [1997] AC 655 (HL), 707–08 (Lord Hoffmann). 158 Wainwright v Home Office [2001] EWCA Civ 2081 [45]. 159 Hicks v Chief Constable of the South Yorkshire Police [1991] UKHL 9. 160 Johnston v NEI International Combustion Limited [2007] UKHL 39 [12]. 161 ibid [30]. Note that in other common law jurisdictions such claims are not necessarily barred. In Australia, see, eg, Fritz v Queensland Corrective Services Commission (Supreme Court of Queensland, unreported, 24 April 1995 (action for strike-out); and in general N Mullany, ‘Fear for the Future: Liability for the Infliction of Psychiatric Disorder’, ch 5 in N Mullany (ed), Torts in the Nineties (Sydney, LBC Information Services, 1997). 162 Yearworth (n 31) [55]. 163 cf Nolan (n 39) 61. 153

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Once the constitutive elements of ITA are borne in mind, it is easy to distinguish it from mere distress. Many of the above-listed interests that are unprotected by negligence law do not involve depriving the claimant of any real choice, so should not lead to compensation for injury to autonomy. Endangering the claimant who feared for his life but was not injured did not deprive the claimant of any real choice (and the same is true of injuring him). ITA type 2 is an actual harm (pace an apprehension in relation to a risk) since the infringement places the victim, against her will, in a state that she regards as antithetical to her core beliefs, or which is otherwise incompatible with the way she leads her life. In such cases, the harm goes to the root of the type of life one seeks to live. That the injury to a guest’s autonomy is, or might also be, manifested by subjective feelings of distress, or physical disgust, does not mean the injury is reducible to a ‘mere distress’. Therefore, even if the (often unarticulated) policy considerations militating against recognising mere distress as actionable damage in negligence are convincing,164 they ought not block Bhamra’s claim. It is one thing to refuse to compensate claimants who were subjected to a risk which has not materialised and which perhaps never will, who were subject to inconvenience, or who were offended by something said to them.165 It is quite another to deny compensation to someone who, due to misrepresentation, consumed ‘avoided’ food. Denial of compensation for mere fear or grief (which does not amount to psychiatric injury) is based on the idea that one has no right to be free from distress which is negligently inflicted and that, absent physical injury, the negative emotions resulting from merely being exposed to the risk should not be considered as violation of a right. But someone who consumed ‘avoided’ food due to misrepresentation was not merely put at a risk which did not materialise (but nevertheless caused distress). Rather, his autonomy over his body (what to eat) and his lifestyle (what to consume and what spiritual and ethical guidance to follow) was compromised. Once the constitutive elements of ITA are understood, it is easy to see how the scenarios in Bhamra, Chester and Rees in which ITA was protected could be distinguished from the cases in which mere distress in negligence is not actionable. ITA is also distinct from distress arising in the contractual context, which is compensable if peace of mind and freedom from distress were an important term of the contract.166 Consider the distress felt as a result of the ruined vacation in Jackson.167 Jackson’s autonomy was compromised only in the weak sense that he did not care for what was received, which fell short of what was bargained for. He would have suffered an injury to autonomy in a stronger sense, had he had ethical reasons to avoid visiting a certain place, but was sent there due to the agent’s mistake and despite clarifying his requirements in advance.168 As was explained above, ITA is different from thwarted expectation, as only in ITA does the claimant have a reason to avoid what was received. The preference for red over blue tablecloths in the wedding mentioned above is a case in point. Assuming there was no time to change the tablecloths to red, the couple was deprived of a choice to ‘consume’ red tablecloths and had to irreversibly ‘consume’ blue ones. This was contrary to their preference and undoubtedly

164

Wainwright (n 158) [44]. See nn 157–61 above. 166 See n 75. 167 Jackson (n 73). 168 An example would be an observant Cohen (Jewish priest) who is forbidden from entering a cemetery but is sent to accommodation requiring such entry. 165

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justifies damages for distress. However, few would deny that, even if it is useful to think of this loss as ITA, it is quite different from the loss suffered by the observant guest. The latter opposes consumption based on ethical belief, not merely taste. This is highly relevant to deciding whether to remedy the ITA, as acting on one’s ethical beliefs is at the core of our understanding of personal autonomy.169

V. Conclusion Whether and, if so, how to remedy ITA in the law of negligence or in contract is a challenge to private law in the twenty-first century. So far, the debate has been marred by lack of analytical clarity, since courts and commentators use ITA to describe three distinct phenomena. Clarifying the distinction between types 1, 2 and 3 ITA and the constitutive elements of ITA 2 (and 1) is the conceptual contribution of this chapter. Normatively, it is uncontroversial that misrepresentations in which decisional autonomy was undermined give rise to pecuniary damages. The debate is really as to whether claimants ought to be compensated in such type 2 cases for non-pecuniary losses. I argue that they ought to be, if the choice that was undermined was based on deeply held views (as in Bhamra), or pertained to core issues (such are reproductive autonomy, or bodily integrity, as in Rees and Chester) with respect to which self-authorship is especially important. Since a constitutive element of type 2 ITA is the undermining of the claimant’s reliance interest, a remedy in negligence (and not only in contract) is called for. Where the choice undermined pertains to a sufficiently important interest, such as determining what treatment to receive, even type 1 injuries ought to be compensated.

169

See text to nn 87, 96–99, 115.

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21 Matter over Mind: Tort Law’s Treatment of Emotional Injury ANNE SCHUURMAN AND ZOË SINEL

I. Introduction These are emotional times. In humanities and social science scholarship, the so-called ‘affective turn’ of the late 1990s continues, decades on, to generate an abundance of research on affect and emotions in politics, public discourse, and nationalist myth-making; in trauma, war, and immigration; in literary and artistic modes of representation; in education and psychoanalysis.1 Arguably, this academic interest in the nature and function of emotion has run parallel to a growing popular sense of the near-absolute validity of individual feeling— a sense that is increasingly apparent in the discourse around identity politics in mainstream media and online forums, and in the blogosphere culture of self-expression.2 Emotion has also taken centre-stage in the fields of cognitive science and philosophy of mind. Whether this surge in scholarly interest is fuelling or responding to the current zeitgeist, it redresses a twentieth-century neglect of emotion. It also returns philosophy to a deep tradition of thinking about ‘the passions’ that stretches from Aristotle to Darwin, and is yielding profound changes in the way that neuroscience understands the function and physiology of emotion.

1 See, eg, P Clough (ed), The Affective Turn: Theorizing the Social (Durham NC, Duke University Press, 2007); T Brennan, The Transmission of Affect (Ithaca NY, Cornell University Press, 2004); M Gregg and GJ Seigworth (eds), The Affect Theory Reader (Durham NC, Duke University Press, 2010). On politics and affect, see Janet Steiger, Ann Cvetkovich, and Ann Reynolds (eds), Political Emotions (New York, Routledge, 2010). See also L Berlant’s trilogy on American sentimentalism: The Anatomy of National Fantasy (Chicago IL, University of C hicago Press, 1991); The Queen of America Goes to Washington City: Essays on Sex and Citizenship (Durham NC, Duke University Press, 1997); The Female Complaint: On the Unfinished Business of Sentimentality in American Culture (Durham NC, Duke University Press, 2008). For recent theoretical perspectives on trauma and affect, see M Atkinson and M Richardson, Traumatic Affect (Newcastle-upon-Tyne, Cambridge Scholars Publishing, 2013). Cf R Leys’ critique of the ‘affective turn’ in trauma studies: From Guilt to Shame: Auschwitz and After (Princeton NJ, Princeton University Press, 2007). 2 This is, admittedly, a subjective impression, and it is beyond the scope of this chapter to substantiate it with anything more than anecdotal evidence. Nonetheless, it is our impression that this evidence is summed up in the words of one Yale student quoted in a recent article in The New Yorker, on the topic of the racial tensions simmering on his university campus: ‘I don’t want to debate. I want to talk about my pain.’ (M O’Rourke, ‘Yale’s Unsafe Spaces’ The New Yorker (13 November 2015).)

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What unites this vast range of critical, clinical, and theoretical approaches is a turn away from emotion defined as a cognitive, evaluative category of thought and judgement, to affect defined as ‘irreducibly bodily and autonomic.’3 Paul Griffiths, following the principles of evolutionary biology, writes that affects are sources of motivation not integrated into the system of beliefs or desires. The characteristic properties of [affective states], their informational encapsulation and their involuntary triggering, necessitate the introduction of a concept of a mental state separate from the concepts of belief and desire.4

The essential idea here is that emotions, or at least a significant component of the total experience we label an emotion, are non-intentional, pre-cognitive, and corporeal. It seems, at first blush, that tort law is not keeping pace with this torrent of feeling, nor with our changing understandings of what emotion is and how it works. Twenty-first century advances in neuroscience indicate that differences between emotional pain and physical pain are neurologically insignificant, that emotional harm can be measured and observed in ways that are equally objective as those that measure physical harm, and that, for these reasons, emotional and physical suffering are virtually indistinguishable in physiological and clinical terms. And yet, in practice, the plaintiff who has suffered emotional harm alone faces more stringent standards for recovery than the plaintiff who has suffered physical harm. In accord with this practical reality, there is a consensus among tort law theorists that emotional and physical injuries are different. This consensus seems to derive from a kind of ‘folk psychology’ that ‘explains behaviour in terms of desires, beliefs, and intentions’—precisely those elements that neuroscience and new theories of affect have called into doubt.5 We say seems to derive, but in fact tort law does not rest on a clearly defined conception of emotion, and thus lacks a unified and coherent theoretical alternative to the materialist definition operative in neuroscience.

3 B Massumi, Parables for the Virtual: Movement, Affect, Sensation (Durham NC, Duke University Press, 2007) 28. Massumi distinguishes between affect, which he defines as ‘prepersonal’, and feelings, which are personal, and emotions, which are social. In English, the term that has been longest in use is ‘passion’, deriving in part from Greek pathos via Latin passio. The history of usage here is complicated, but the connotations of ‘passion’ (suffering, affliction) indicate the word’s longstanding associations with religious experience and irrationality. By contrast, ‘affect’ has been, historically, a more neutral term, in use in English since the fourteenth century to denote ‘the manner in which one is inclined or disposed; … a mental state, mood, or emotion; …a feeling, desire, intention’ (OED, ‘affect’ 1a). Emotion, which derives from the post-classical Latin word for movement, disturbance, or agitation (emotio), has been in use only since the early seventeenth century. The semantic overlap between these three terms has led to some confusion and much debate, with cognitivists favouring emotion and materialists favouring affect. Most agree that ‘feeling’ concerns sensory experience in particular. Following current usage in private law, we use ‘emotion’ here, but part of our argument is to show that the growing importance and traction of biological and neuroscientific accounts of ‘affect’ and ‘feeling’, variously defined, must be reckoned with in the law’s working definition of ‘emotion.’ 4 P Griffiths, What Emotions Really Are: The Problem of Psychological Categories (Chicago IL, Chicago University Press, 1997) 243. Griffiths is working within the tradition of evolutionary biology that begins with Darwin’s The Expression of the Emotions in Man and Animals (London, John Murray, 1872). See also P Ekman (ed), Emotion in the Human Face (Cambridge, Cambridge University Press, 1982). 5 Quoted in J Eggen and E Laury, ‘Toward a Neuroscience Model of Tort Law: How Functional Neuroimaging Will Transform Tort Doctrine’ (2012) 13 Columbia Science and Technology Law Review 235, 254. Original text is S Morse, ‘Determinism and the Death of Folk Psychology: Two Challenges to Responsibility from Neuroscience’ (2008) 9 Minnesota Journal of Law, Science and Technology 1, 2–3. For a rejection of the ‘folk psychology’ of emotions in the context of criminal law, see N Finkel and W Parrot, Emotions and Culpability: How the Law is at Odds With Psychology, Jurors, and Itself (Washington, DC, American Psychological Association, 2006).

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As tort law faces increasingly compelling scientific evidence attesting to the non-volitional physicality of emotions, this definitional fuzziness is likely to lead to an attenuation, or erosion, of tort law’s relatively more stringent rules regarding recovery for emotional harm.6 If we are to retain the orthodox differential treatment of emotional and physical harm in tort law, a new justification is required. In this chapter, we argue that tort law has treated and should continue to treat emotional harm differently from physical harm, but not because emotions are more under our control, easier to fake, or harder to ascertain. Rather, we argue that emotional pain is more complex and more socially and subjectively contingent than physical pain. Indeed, we argue, precisely because our emotional responses do not lie within individual cognitive control, they are indices of our subjective enmeshment in particular human relationships and communities. For this reason, the law should not protect against emotional pain in the same way that it protects against physical pain. In other words, the requirements for recognising emotional suffering as a legally cognisable harm should be more stringent, even though emotional suffering is no less real—no less painful—than physical suffering.

II. The Differential Treatment of Emotional and Physical Harm in Legal Doctrine and Theory In practice, in the law of personal injury, a plaintiff who seeks a remedy for her experience of emotional harm at the hands of the defendant faces greater obstacles to litigation success than a plaintiff who looks to remedy the defendant’s physical slights against her person. Some tort scholars have sought to justify this differential treatment, but we argue that the justifications offered to date rely on a faulty conception of what emotions are in general, and, in particular, on a faulty conception of the nature of emotional harm in tort law.

A. Tort Doctrine and its Practical Rationales As a matter of common law history, prior to Wilkinson v Downton,7 a plaintiff could not recover for nervous shock unless it was consequent upon physical injury. Three and a half decades before Wilkinson, in Lynch v Knight, Lord Wensleydale had this to say about the law’s relationship to emotional harm: Mental pain or anxiety the law cannot value, and does not pretend to redress, when the unlawful act complained of causes that alone; though where a material damage occurs, and is connected

6 See Eggen and Laury (n 5) 249 for examples of the inroads that neuroscientific advances have made in the law generally and, at 253–60, for the inroads they have made in tort law, specifically. While the case law Eggen and Laury cite is American, we can expect to see similar trends develop in other jurisdictions. See n 22 below for evidence of a similar affective turn beginning to occur in the law. 7 Wilkinson v Downton [1897] 2 QB 57.

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with it, it is impossible a jury, in estimating it, should altogether overlook the feelings of the party interested.8

Thus, a jury could take into account the ‘feelings’ of a victim of a wrong when calculating the appropriate monetary award for a wrongful act that produced ‘material damage’ to the victim’s physical person or property. If, however, the victim’s only complaint was hurt feelings—‘mental pain or anxiety’—these were not amenable to redress. The implicit idea here is that infliction of mental suffering alone is not a wrong; individuals do not have a right to be free from intentional or negligent infliction of mental pain. Only if mental pain is a consequence of a recognised right-infringement (for example, to the integrity of one’s physical person or property) is it recoverable.9 Modern common law now recognises, in limited circumstances, torts of intentional and negligent infliction of nervous shock (emotional distress). That is, we now impose standalone duties not to inflict emotional harm either intentionally or negligently and we recognise standalone rights to be free from intentional or negligent infliction of emotional harm. The tort of intentional infliction of emotional distress (IIED) protects our emotional security from another’s intentional infliction of distress, but it contains doctrinal limits not present in the equivalent intentional tort dealing with physical harm—ie, battery. First, a battered plaintiff only needs to prove that the defendant intended physical contact that was either offensive or harmful. Moreover, the doctrine of imputed intent allows a court to construe intention when the consequences of the act were certain or substantially certain to flow from the defendant’s intentional activity.10 By contrast, an emotionally distressed plaintiff must show that the defendant’s conduct was flagrant or outrageous, not merely intentional.11 If a defendant acted flagrantly or outrageously while interfering with the

8

Lynch v Knight (1861) 11 ER 854, 863. In this way, tort law’s exclusion of standalone redress for emotional loss is analogous to the erstwhile exclusionary rule for pure economic loss. While economic losses that were consequences of a recognised wrong have always been recoverable, it used to be the case that pure economic loss—that is, economic loss that was not caused by the violation of one’s right to one’s physical person or property—was unrecoverable. See Weller v Foot and Mouth Disease Research Institute [1966] 1 QB 569 (QBD). In Canada, the restriction on recovery for pure economic loss has been attenuated considerably. See Winnipeg Condominium Corp No 36 v Bird Construction Co [1995] 1 SCR 85; D’Amato v Badger; Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210, inter alia. The relaxation of both the bright line rules against recovery for standalone economic loss and pure emotional harm are related to a general re-conceptualisation of tort law. Tort law, under the modern Canadian understanding, appears to adopt a compensation-for-loss model. On this model, the point of tort law is to compensate the plaintiff for losses she experiences as a result of the defendant’s putatively wrongful behaviour. It is no longer the case that the plaintiff has to show that the loss she suffers flows from the violation of a legally recognised right. Proof of this argument lies outside the scope of this chapter, but for defences of a rights-based understanding of tort law, see: A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007); A Ripstein, Private Wrongs (Cambridge MA, Harvard University Press, 2016); R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007); and E Weinrib, The Idea of Private Law (Cambridge MA, Harvard University Press, 1995). 10 In Rhodes v OPO [2015] UKSC 32, the United Kingdom Supreme Court abolished the doctrine of imputed intent. What remains, however, is the idea fundamental to the concept of imputed intent, that the court will use evidence of the surrounding circumstances to find that the defendant in fact intended the tort, notwithstanding his statements to the contrary. 11 In Rahemtulla v Vanfed Credit Union [1984] 3 WWR 296 [54], Justice McLachlin of the British Columbia Supreme Court, as she then was, applied the flagrant or outrageous requirement and clarified that ‘mere insult’ would not suffice. On the facts of Rahemtulla, however, the defendant’s dismissal of the plaintiff while falsely accusing her of theft satisfied this criterion. In Fitzpatrick v Orwin 2012 ONSC 3492 [117], the defendant’s placing 9

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plaintiff ’s physical person, this would be grounds for aggravated or possibly even punitive damages. Thus, it is evident that the plaintiff who suffers an intentional emotional injury as a result of the defendant’s conduct has a higher evidentiary burden than a similarly situated plaintiff who has suffered an intentional physical injury. Second, it is not necessary for the tort of battery that the defendant’s conduct was specifically calculated to produce the kind of harm that it did. According to the doctrine of transferred intent, if the defendant intends one kind of tort (one kind of harm) but another occurs, we can transfer the intent from the first intended tort to the second, actually committed tort. If, for example, I intend to shoot your dog, but I shoot you instead, the court will happily transfer the intent from the intended tort of trespass to chattels to the actually committed tort of battery. By contrast, in the sphere of emotional distress, if I intend to harm you physically, but emotionally harm you instead, and the emotional harm you suffer is not ‘almost certain to occur’, then I would not be liable for IIED. For IIED, the defendant’s conduct must be calculated to produce the kind of emotional harm that it did. In Boucher v Wal-Mart Canada Corp,12 the Ontario Court of Appeal held that: The plaintiff cannot establish intentional infliction of mental suffering by showing only that the defendant ought to have known that harm would occur. The defendant must have intended to produce the kind of harm that occurred or have known that it was almost certain to occur.13

In practice, this means that the defendant has to intend to produce emotional harm. This appears to disallow the application of the doctrine of transferred intent to the tort of IIED. Like the tort of IIED, the tort of negligent infliction of emotional distress (NIED) has a history of exclusion. The most famous historical limit for this tort is the so-called ‘impact rule’, according to which a plaintiff could not recover unless the psychiatric harm was triggered by physical impact.14 According to the Privy Council in Coultas, ‘Damages arising from mere sudden terror unaccompanied by any actual physical injury, but occasioning a nervous or mental shock, cannot … be considered a consequence which, in the ordinary course of things, would flow from the negligence.’15 The English Court of Appeal in Dulieu v White & Sons16 replaced the impact rule with the limit that the plaintiff must suffer shock as a result of fear of injury to herself. She no longer had to be physically injured, but she had to be within the zone of danger in which a person would reasonably fear physical impact. In Hambrook v Stokes Brothers, the rule was extended to situations in which ‘the shock was due to a reasonable fear of immediate personal injury either to herself or to her children.’17 The fact remained, however, that the

of a dead coyote on the plaintiff ’s car sufficed and was held to be the ‘epitome of flagrant and outrageous conduct’. In Piresferreira v Ayotte 2010 ONCA 384 [70], the Ontario Court of Appeal expressed doubt as to whether the defendant’s unfair placing of an employee on a performance improvement plan without apologising beforehand amounted to outrageous conduct. Finally, in Ciszowski v Canac Kitchens 2015 ONSC 73 [126]–[127], the defendant’s request for sufficient notice of doctors’ appointments and notes was not considered sufficient for the flagrant and outrageous criterion. 12

Boucher v Wal-Mart Canada Corp 2014 ONCA 419. ibid [44]. 14 Victorian Railways Commissioner v Coultas (1888) 13 App Cas 222 (PC). 15 Coultas (n 14) 255. 16 Dulieu v White & Sons [1901] 2 KB 699 (CA). 17 Hambrook v Stokes Brothers (1924), [1925] 1 KB 141 (CA) (emphasis added). 13

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plaintiff had to witness the shocking incident with her own senses; it was not sufficient to hear about it from someone else. The House of Lords rejected this limit in McLoughlin v O’Brian.18 Here, the plaintiff recovered even though she was not fearful of injury to herself and was also not present at the scene of the accident. She only attended its aftermath. Lord Wilberforce recommended limiting recovery using three criteria: ‘the class of persons whose claims should be recognised; the proximity of such persons to the accident; and the means by which the shock is caused’.19 For a plaintiff to succeed, she must establish temporal, geographic, and relational proximity. In other words, her knowledge of the incident must come within a short time of its occurring, she must be sufficiently close in geography to the accident, and the accident must have affected or potentially affected someone with whom she held close relational ties.20 The leading Canadian case on NIED is Mustapha v Culligan.21 According to the current understanding of the tort in Canada, the plaintiff must show that (i) he was exposed to a situation in which a person of ‘ordinary fortitude’ could suffer a psychiatric injury and (ii) he suffered a ‘recognised psychiatric illness.’22 While, as we will argue in section III, the requirement of ordinary fortitude has an equivalent in ordinary negligence claims concerning physical injuries, the ‘recognised psychiatric illness’ requirement appears not to. Minor physical harms are sufficient to ground the actual loss requirement of a negligence action; however, when the interest affected is one’s mental or emotional health, the courts have been almost unanimous that minor emotional harms are excluded.23 In Mustapha, McLachlin CJ stated: Personal injury at law connotes serious trauma or illness… The law does not recognize upset, disgust, anxiety, agitation or other mental states that fall short of injury. I would not purport to define

18

McLoughlin v O’Brian [1982] 2 All ER 298 (HL). McLoughlin (n 18) 304. These criteria were subsequently discussed in Alcock v Chief Constable of South Yorkshire Police [1991] 4 All ER 907 (HL) and White v Chief Constable of South Yorkshire Police [1999] 2 AC 455 (HL), which refined the ideas of temporal, geographic, and relational proximity. 20 In Page v Smith [1996] 1 AC 155 (HL), the House of Lords articulated a significant difference with respect to recovery prospects between primary and secondary victims. This difference was rejected by Canadian courts, see Mustapha v Culligan 2008 SCC 27. 21 Mustapha (SCC) (n 20). The Ontario Court of Appeal’s decision in Mustapha takes a more traditional approach to the tort of negligent infliction of emotional distress: (2006) 84 OR (3d) 457 (CA). While the Supreme Court of Canada construed the issue as one of remoteness, the Ontario Court of Appeal saw it as a question of duty. For the leading post-Mustapha Ontario case on nervous shock, see Healey v Lakeridge Health Corporation (2011) 103 OR (3d) 401. 22 A handful of cases have rejected the requirement of recognised psychiatric illness: In McDermott v Ramadanovic Estate (1988) 44 CCLT 249 (BCSC), a 13-year-old girl saw her parents die in a car accident. Justice Southin held that there is no ‘logical difference between a scar on the flesh and a scar on the mind’ and the plaintiff recovered damages for emotional pain despite the fact that she had not suffered a recognisable psychiatric illness. (McDermott 259.) Justice Southin continued to apply a more expansive understanding of legally cognisable emotional harm in her concurring judgment in Rhodes v Canadian National Railway Co [1990] DLR (4th) 248 (BCCA). These decisions, while they might indicate a trend in the treatment of emotional harm, at present, are better considered exceptional in light of the generally accepted more restrictive approach to emotional harm. For example, in Graham v MacMillan 2003 BCCA 90 [8], the British Columbia Court of Appeal confirmed that, notwithstanding decisions such as McDermott, ‘the weight of authority supports a recognised psychiatric illness as a condition for liability’. 23 cf Mason v Westside Cemeteries Ltd [1996] 135 DLR (4th) 361, 379 (Gen Div) (ON SC), Justice Molloy expressed discomfort with this. Here, the defendant had lost the cremated remains of the plaintiff ’s parents. The plaintiff had ‘lost peace of mind’, but did not require any professional care or medication as a result of his 19

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compensable injury exhaustively, except to say that it must be serious and prolonged and rise above the ordinary annoyances, anxieties and fears that people living in society routinely, if sometimes reluctantly, accept. … Quite simply, minor and transient upsets do not constitute personal injury, and hence do not amount to damage.24

McLachlin CJ implied that there is an equivalence between ordinary emotional upsets that we must bear if we live in society and ordinary physical contacts that we must also put up with. In the words of the Ontario Court of Appeal in Vanek v Great Atlantic & Pacific Co of Canada, ‘Life goes on.’25 Clearly, however, there is a world of difference between jostles on the subway and the feelings of grief and sorrow that result upon the death of a loved one. For one, a jostle on the subway rarely leads to the experience of any pain at all, let alone the intense and prolonged feelings of grief that normally follow serious loss. Notwithstanding the apparent differences between daily physical contact and once-in-a-lifetime grief, we suggest at the end of the chapter that, through a more nuanced understanding of the role of emotions, we can explain why the law treats them in a similar fashion. On a practical level, courts and legal scholars have justified the differential treatment of emotional harm by appealing to concerns about the legitimacy of emotional suffering. For one thing, claims of emotional harm seem more prone to fraudulence; for another, emotional pain seems somehow less serious or worthy of legal redress than physical pain.26 In addition to these legitimacy concerns, courts and scholars fear the consequences of treating emotional harm as equal to physical harm: there seems to be a potential for limitless e motional distress; he did not satisfy the recognised psychological illness requirement. Justice Molloy awarded the plaintiff $1,000 in damages for mental distress, and commented: It is difficult to rationalize awarding damages for physical scratches and bruises of a minor nature but refusing damages for deep emotional distress which falls short of a psychiatric condition. Trivial physical injury attracts trivial damages. It would seem logical to deal with trivial emotional injury on the same basis, rather than by denying the claim altogether. Judges and juries are routinely required to fix monetary damages based on pain and suffering even though it is well-known that the degree of pain is a subjective thing incapable of concrete measurement. It is recognized that emotional pain is just as real as physical pain and may, indeed, be more debilitating. I cannot see any reason to deny compensation for the emotional pain of a person who, although suffering, does not degenerate emotionally to the point of actual psychiatric illness. Surely emotional distress is a more foreseeable result from a negligent act than is a psychiatric illness. (Emphasis added.) 24 Mustapha (SCC) (n 20) [9]. For analysis and criticism of the Court’s treatment of recognised psychiatric illness requirement, see: PH Osborne, The Law of Torts, 3rd edn (Toronto, Irwin Law, 2007) 82–89; DS Campbell and C Montigny, ‘Psychological Harm and Tort Law: Reassessing the Legal Test for Liability’ in T Archibald and M Cochrane (eds), Annual Review of Civil Litigation 2003 (Toronto, Carswell, 2003) 133, 145–46; D Butler, Damages for Psychiatric Injuries (Annandale, New South Wales, Federation Press, 2004) 135–36; R Mulheron, ‘Rewriting the Requirement for a “Recognized Psychiatric Injury” in Negligence Claims’ (2012) 32 OJLS 77; Belanger-Hardy, ‘Reconsidering the “Recognizable Psychiatric Injury” Requirement in Canadian Negligence Law’ (2013) 38 Queen’s Law Journal 583; and Belanger-Hardy, ‘Thresholds of Actionable Mental Harm in Negligence: A Policy-Based Analysis’ (2013) 36 Dalhousie Law Journal 103. 25 Vanek v Great Atlantic & Pacific Co of Canada (1999) 48 OR (3d) 228 (ONCA) [60]. See also: Tame v New South Wales (2002) 211 CLR 317, 191 ALR 449 (HCA) [193]–[194] (Gummow and Kirby JJ):

In Australia, as in England, Canada and New Zealand, a plaintiff who is unable affirmatively to establish the existence of a recognisable psychiatric illness is not entitled to recover. Grief and sorrow are among the ‘ordinary and inevitable incidents of life’; the very universality of those emotions denies to them the character of compensable loss under the tort of negligence. Fright, distress or embarrassment, without more, will not ground an action in negligence. Emotional harm of that nature may be evanescent or trivial. 26 R Solomon, M McInnes, E Chamberlain, and S Pitel, Cases and Materials on the Law of Torts, 9th edn (Toronto, Carswell, 2015) 415.

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litigation—the ‘floodgates’ argument—as well as a potential for redress of emotional harm to place constraints on valuable activities, especially freedom of speech.27 According to a leading Canadian tort law text, ‘X-rays can prove the existence of a broken bone, but there (still) is no similarly conclusive test for the existence of a psychiatric illness.’28 In other words, current tort law holds that while physical injury can be proven objectively and manifests objectively, the only indicia we have of an emotional injury are the self-reported, and hence self-interested, feelings of the injured plaintiff. In Coultas, the Privy Council expressed worry about the danger of ‘imaginary claims’.29 More recently, the British Columbia Court of Appeal in Devji v District of Burnaby et al stated, I am not confident that the administration of justice is usually able to identify unmeritorious claims successfully. Fraudulent claims are sometimes uncovered but many claims are advanced by persons who genuinely believe they have suffered psychiatric injury when their real condition is grief or sorrow, and such claims are difficult to disprove. … In these kinds of cases there must necessarily be a healthy measure of judicial scepticism if there is to be a fair adjudication.30

This concern about fraud, or ‘unmeritorious claims’, seems rooted in the common-sense perception that the line between a normal or even healthy emotion—‘grief or sorrow’—and an emotional harm—‘psychiatric injury’—is unclear, or perhaps inaccessible to the view of courts. This, in turn, creates the impression that a hierarchy of harms operates implicitly in the treatment of emotional harm, according to which ‘damage to one’s psyche [is] less worthy of protection than damage to one’s body.’31 As Martha Chamallas notes, ‘Although we do not always tell our students about this on the first day of class, tort law values physical injuries and property damage more highly than emotional injuries or relational harms.’32 The difficulty of discerning the line between normal emotional pain and legally cognisable emotional harm also makes it difficult to set limits on liability. The floodgates objection was posed by Justice Clarence Thomas in Consolidated Rail Corp v Gottsha, a 1994 case put before the US Supreme Court: ‘Whereas the agents of physical harm are usually limited in time and space, the potential triggering mechanisms for psychiatric harm are much more far-ranging.’33 Here, the Court held that the Federal Employers’ Liability Act did not allow redress for a worker who had witnessed the negligent killing of a member of his crew unless he was within the ‘zone of danger’. Justice Thomas, writing for the majority, cited the ‘most significant problem’ to be the prospect of ‘nearly infinite liability’.34 According to Thomas J, this is because ‘emotional injuries may occur far removed in time and space from the negligent conduct that triggered them.’35

27 Solomon (n 26) 415. Note: similar (external) policy rationales are invoked to justify the current restrictions on recovery for pure economic loss, in particular, that economic losses are considered less worthy of protection than bodily security or property, and worries about indeterminate liability of an indeterminate amount to an indeterminate number. See D’Amato v Badger (n 9). 28 Solomon (n 26) 415. See also W Prosser, Handbook of the Law of Torts (St Paul MN, West, 1941) §34, 212: ‘[T]he only valid objection against recovery [for such claims] is the danger of vexatious suits and fictitious claims, which has loomed very large in the opinions as an obstacle.’ 29 Coultas (n 14) 226. 30 Devji v District of British Columbia 1999 BCCA 599 [47] (McEachern J). 31 Solomon (n 26) 415. 32 M Chamallas, ‘The Architecture of Bias: Deep Structures in Tort Law’ (1998) 146 University of Pennsylvania Law Review 463, 468. 33 Consolidated Rail Corp v Gottsha 512 US 532, 558 (1994). 34 ibid 552. 35 ibid 545.

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In Devji, the BC Court of Appeal echoed these floodgates concerns, warning that it is naïve to believe that an expansion of any area of liability will not produce a volume if not a flood of both valid and invalid claims. This is particularly so when the line between grief and nervous shock is so difficult to ascertain.36

This in turn has led to concerns that lowering the bar for liability for emotional harm would result in unjustifiable limits placed on valuable activities. Given the ‘nearly infinite liability’ that actions for emotional harms invite, no one could be sure that their behaviour was not potentially causing someone emotional distress. Arguments that increased liability for infliction of emotional distress produces a ‘chilling effect’ on otherwise valuable activities are often found in American legal scholarship concerning the constitutional protection afforded to free speech.37

B. Normative Rationales The above explanations for tort law’s differential treatment of emotional and physical harm are practical, but they do not provide normative justifications. Several legal scholars have attempted to fill this gap. Significantly, all such attempts boil down to essentially the same justification: tort law treats emotional harms differently from physical harms because we have control over our emotional reactions to external stimuli in a way we do not over our physical reactions. According to Erica Goldberg, ‘Ultimately, we are the keepers of our own minds, and the law should reflect a morality where individuals cannot be compensated for harms over which they have relatively more control’, and which ‘are bound up in notions of identity, voluntariness, and consent.’38 For this reason, she concludes that potential plaintiffs have emotional duties to control their own reactions to potentially distressing behaviour. Similarly, John Goldberg and Benjamin Zipursky argue that the law’s requirement of reasonable fortitude is the equivalent to a parent telling his or her child not to make a mountain out of a molehill.39 We are, according to the authors, responsible to a certain extent for our emotional reactions to the external world: In a nutshell, then, the idea is that a plaintiff ’s emotional response to a state of affairs is a matter for which she herself can sometimes, indeed often, be held responsible. Emotional distress is not simply an uncontrolled or uncontrollable reflex, as is the bodily response to a blow or a toxin. It is a response mediated by the mind of the plaintiff.40

Along the same lines, Greg Keating has urged that Emotional distress differs from physical harm in a fundamental and categorical way. Our emotional reactions are mediated by our minds. Emotional injury may thus be the product—not the negation—of our agency. Often emotional reactions are much more subject than physical responses

36

Devji (n 30) [47]. See, eg, R Rabin, ‘Emotional Distress in Tort Law: Themes of Constraint’ (2009) 44 Wake Forest Law Review 1197, 1203–05. 38 E Goldberg, ‘Emotional Duties’ (2015) 47 Connecticut Law Review 809, 814–15. 39 J Goldberg and B Zipursky, ‘Unrealized Torts’ (2002) 88 Virginia Law Review 1625, 1680–81. 40 ibid 1681. 37

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to our minds, our wills and our control. We can teach ourselves to toughen up and not be so sensitive, and we can steel ourselves against even exceedingly unpleasant experiences. Our sensibilities are subject to shaping by our wills. The way that we do react can be made responsive to our considered judgments about how we should react. Up to a point, we can and do learn to protect ourselves against emotional harm by mastering our emotions. We can learn to treat even the most exasperating events of ordinary life with relative calm, and we usually do. We learn to cope, not complain.41

All of these examples emphasise the individual’s capacity for cognitive control as well as her moral responsibility to exercise such control. This two-pronged implicit denial of the nonvolitional components of emotions recalls ancient Stoicism. For the Stoics, the ‘first movements’, such as shuddering or changes in heart rate or blood flow, were not equivalent to emotions, but were the initial signs that the body was reacting to external stimuli felt to be either good or bad.42 The Stoics believed that these physiological responses were autonomic and uncontrollable, but that first movements only become full-fledged emotions when we exercised our judgement in assent to the bodily reaction.43 Stoicism thus seizes on the gap, as it were, between autonomic response and cognitive assessment as the space that distinguishes human beings from animals (and, for some, men from women and children), and that makes it possible to pursue the ideal human condition, the state of apatheia, in which the truly wise and moral man remains unswayed by emotion. For the Stoics, in other words, the physiological component of emotion does not entail a biological fate, but rather a challenge to be overcome through the exercise of discipline and reason. And because emotions result from mistaken judgements about the world, the process of overcoming emotion is itself morally and intellectually edifying. While the Stoics were interested in promoting a practical programme for living well, tort law’s aims are much more limited. And yet, both invoke an ideal of self-sufficiency, insofar as both seek to establish the conditions in which individual autonomy can best flourish. In tort law, one is responsible for what one can control, no more and no less—indeed, one could argue that this notion underlies all of tort law doctrine. It is what justifies a plaintiff ’s ability to engage the machinery of the state through its civil justice system to coerce a defendant to right a wrong he has done to her. The defendant, by virtue of his wrongdoing, by virtue of his individual choice and agency, has created a situation whereby he cannot complain when the plaintiff demands, with the full force of the state at her back, that he repair his wrong. Similarly, the plaintiff, if she is also responsible for her own wronging— eg, she voluntarily assumed the risk, she was contributorily negligent, or she unreasonably failed to mitigate or seek reasonable treatment—will be limited in the amount she can recover from the defendant. She will be considered partly ‘at fault’ and therefore must shoulder the consequences. Moreover, on some understandings of tort law, the ‘point’ of the law is to secure a sphere of individual freedom and choice. The idea is that people should be allowed to choose how to live their lives, use the means at their disposal, and pursue whatever purposes they set, insofar as these pursuits do not interfere with the equal ability of others to pursue their own purposes.

41 G Keating, ‘When is Emotional Distress Harm?’ in S Pitel, J Neyers, and E Chamberlain (eds), Tort Law: Challenging Orthodoxy (Oxford, Hart Publishing, 2013) 300. 42 See, eg, Seneca, De Ira 2.4.1. See also M Nussbaum’s commentary in The Therapy of Desire: Theory and Practice in Hellenistic Ethics (Princeton NJ, Princeton Press, 1994) 316–438; and R Sorabji, Emotion and Peace of Mind: From Stoic Agitation to Christian Temptation (Oxford, Oxford University Press, 2010). 43 S Knuuttila, Emotions in Ancient and Medieval Philosophy (Oxford, Oxford University Press, 2004) 63–67.

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III. The Neuroscientific Challenge The sense in tort law that emotional harms are not objectively verifiable in the way that physical harms are (and, therefore, are more prone to fakery) finds a corollary in what Joseph Ledoux terms the ‘cognitive revolution’ in neuroscience of the mid-twentieth century.44 In the early decades of the field, neuroscientists largely ignored emotion in favour of brain functions deemed more amenable to objective analysis, such as perception and memory, both of which ‘were readily thought of in terms of computer-like operations’.45 Thus, while courts are faced with the real problem of how to assess ‘credibility’, earlier neuroscientists likewise focused on cognitive processes that could be mapped and measured, in order to avoid ‘the dark cloud of subjectivity that hung over the topic of emotion’.46 It is no longer the case that emotions are considered to lie beyond the scope of neuroscientific inquiry. Neuroscientific interest in emotion has burgeoned in recent decades, suggesting that, indeed, the dark cloud of subjectivity is rapidly dissipating, as new technologies render emotion experimentally ‘tractable’ and thus available for scientific analysis.47 For example, there has been an ‘explosion’ of work on the physiology of fear: by studying people with impaired amygdalas, or by studying the effects of drugs that block chemical receptors in the hippocampus, scientists now have a fairly clear picture of the plasticity of the amygdala and how it acts to produce a fear response in the body.48 Moreover, and more pressing for tort law, neuroscientists are now able to measure the effects of certain kinds of emotional harm through imaging techniques developed out of PET (positron emission tomography), CT (cranial computed tomography), and MRI (magnetic resonance imaging) scans.49 A variation on the latter, the functional MRI technique (fMRI), developed in the 1990s, is like a traditional MRI in that it provides ‘detailed structural images of the brain’ through strong magnet and radio waves, but it also measures blood flow to areas of the brain with fine precision, and so can be used ‘to observe the activation of brain structures in response to almost any kind of brief stimulation, 44

J Ledoux, ‘Emotion Circuits in the Brain’ (2000) 23 Annual Review of Neuroscience 155, 156. ibid 156. 46 ibid 156. 47 Ibid 156. See also, for example, A Damasio’s pioneering study, Descartes’ Error: Emotion, Reason, and the Human Brain (New York, Penguin, 1994), as well as Damasio’s more recently published clinical work: (with H Damasio, G Fox, and J Kaplan) ‘Neural Correlates of Gratitude’ (2015) 6 Frontiers in Psychology 1491; (with A Habibi) ‘Music, Feelings and the Human Brain’ (2014) 24(1) Psychomusicology: Music, Mind and Brain 92. 48 Ledoux (n 44) 159. Damasio has also conducted clinical experiments on fear: see, eg (with JS Feinstein, R Adolphs, and D Tranel) ‘The Human Amygdala and the Induction and Experience of Fear’ (2011) 21 Current Biology 34. Ledoux provides a clear and succinct description of how the brain works when confronted with fear stimulus in a 1994 article published in J Ledoux, ‘Emotion, Memory, and the Brain’ (1994) 270 Scientific American 38: 45

As the hiker walks through the woods, he abruptly encounters a snake coiled up behind a log on the path. The visual stimulus is first processed in the brain by the thalamus. Part of the thalamus passes crude, almost archetypal, information directly to the amygdala. This quick and dirty transmission allows the brain to start to respond to the possible danger … The visual cortex then goes about the business of creating a detailed and accurate representation of the stimulus. The outcome of cortical processing is then fed to the amygdala as well. Although the cortical pathway provides the amygdala with a more accurate representation than the direct pathway from the amygdala to the thalamus, it takes long for the information to reach the amygdala by way of the cortex. 49 E Goldberg (n 38) 826. See L Tancredi and J Brodie, ‘The Brain and Behavior: Limitations in the Legal Use of Functional Magnetic Resonance Imaging’ (2007) 33 American Journal of Law and Medicine 271, 271–72

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r anging from sounds to visual images to gentle touching of the skin’.50 fMRI techniques have enabled scientists to show ‘invisible injuries’, for example differentiating between patients who report chronic pain from those who report no pain.51 Neuroimaging technologies also suggest that physical and emotional pain are more similar than we might believe.52 Neurotransmitters that process physical pain, mu-opioids, are also triggered in experiences of ‘separation distress’ in infants.53 Similarly, administration of mu-opioid-responsive drugs such as codeine and morphine has the effect of reducing separation anxiety in infants.54 Eisenberger has shown that we can now see shared neural activity in regions typically associated with the unpleasant experience of physical pain.55 The dorsal anterior cingulate cortex (dACC) and the interior insula are the primary sites of the brain devoted to the unpleasant component of physical pain. Patients who have had their dACC removed (patients with chronic pain) ‘report that although they can still “feel” painful stimulation, it no longer bothers them’.56 Similarly, Eisenberger and others conducted a study with Tylenol and a game of social exclusion. The study revealed that the Tylenol reduced painful feelings resulting from ostracism. It seems that an aspirin a day will keep the psychologist away.57 ( discussing how fMRI scans can be used to study the effect of emotional harm on the brain). See also: B Grey, ‘The Future of Emotional Harm’ (2015) 83 Fordham Law Review 101; S Tovino, ‘Functional Neuroimaging and the Law: Trends and Direction for Future Scholarship’ (2007) 7 The American Journal of Bioethics 44. 50 51

Eggen and Laury (n 5) 242. Looking at the effects of post-traumatic stress disorder on the brain, Betsy Grey (n 49) 827 explains: Extensive and replicated research has revealed brain regions that are associated with emotional trauma. In particular, structural and functional neuroimaging results implicate specific sub-regions of the medial prefrontal cortex (MPFC), orbitofrontal cortex (OFC), anterior cingulated (ACC), and insular cortices, the amygdala, and the hippocampus in the processing of emotional information. Research suggests that dysfunction in this circuitry triggers and maintains emotional disorders.

See also B Grey, ‘Neuroscience and Emotional Harm in Tort Law: Rethinking the American Approach to FreeStanding Emotional Distress Claims’ (2010) 13 Law and Neuroscience: Current Legal Issues 212, 213. For a summary of how fMRI technology has been used in legal contexts, see Eggen and Laury (n 5). 52 N Eisenberger, ‘Why Rejection Hurts: What Social Neuroscience has Revealed about the Brain’s Response to Social Rejection’ in J Decety and JT Cacioppo (eds), The Oxford Handbook of Social Neuroscience (Oxford, Oxford University Press, 2011). NI Eisenberger and MD Lieberman, ‘Why Rejection Hurts: The Neurocognitive Overlap between Physical and Social Pain’ (2004) 8 Trends in Cognitive Sciences 294. ‘Neuroimaging analyses revealed that when participants were socially excluded (vs included), they showed greater activity in the dACC [dorsal anterior cingulate cortex] and anterior insula, regions often associated with physical pain.’ (N Eisenberger, ‘Broken Hearts and Broken Bones: A Neural Perspective on the Similarities Between Social and Physical Pain’ (2012) 21 Current Directions in Psychological Science 42, 43b). 53 Eisenberger, ‘Broken Hearts and Broken Bones’ (n 52) 43b. 54 J Panksepp, Affective Neuroscience (Oxford, Oxford University Press, 1998). 55 Eisenberger, ‘Broken Hearts and Broken Bones’ (n 52) 42b–43a. 56 ibid 43a. 57 Citation to the study: C DeWall, G MacDonald, G Webster et al, ‘Tylenol Reduces Social Pain: Behavioral and Neural Evidence’ (2010) 21 Psychological Science 931. As discussed in Eisenberger, ‘Broken Hearts and Broken Bones’ (n 52) 45b: We have also explored whether certain medications typically thought to reduce physical pain, like Tylenol (generic name: acetaminophen), could also reduce social pain. In a first study, participants were randomly assigned to take either a daily dose of Tylenol or a placebo for a 3-week period. In addition, during this time, they recorded their daily self-reported hurt feelings each evening. Results demonstrated that participants taking Tylenol showed a significant reduction in hurt feelings over the 3-week period, whereas participants taking placebo showed no significant change in hurt feelings. In a subsequent neuroimaging

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Antonio Damasio’s work with people who suffer from anosognosia, in particular, provides an instructive counterpoint to the concern that complaints of emotional harm are easier to fake, or harder to verify. Anosognosia is a condition characterised by the inability to acknowledge disease in oneself, a general lack of emotional expression, and an inability to make ‘appropriate decisions on personal and social matters’.58 It is caused by damage to a particular group of right cerebral cortices in the brain, the somatosensory cortices.59 Patients with this condition may be completely paralysed on one side of their body, but they verbally deny the fact, or they may be told that they have an invasive cancer, but respond with cheerfulness or unconcern. There is no chance that the symptoms of anosognosia are ‘purely’ psychological. As Damasio explains: In short, left-side paralysis caused by a particular pattern of brain damage is accompanied by anosognosia; right-side paralysis caused by the mirror-image pattern of brain damage is not accompanied by anosognosia; left-side paralysis caused by patterns of brain damage other than those associated with anosognosia is not accompanied by unawareness. Anosognosia, then, occurs systematically with damage to a particular region of the brain, and only that region.60

Patients with anosognosia exhibit a generalised affectlessness as well as a particular indifference to their physical injury or illness. Their general lack of emotion illustrates the anatomical locus of emotion in the prefrontal cortex, but it also inverts the notion of faked emotional harm. Here, there is a clear disjunction between an individual’s expression or reporting of emotional experience and his objectively verifiable injury, but far from faking or exaggerating, the subjective experience and expression of emotion actually obfuscates the injury—sometimes with tragic consequences. As Damasio reports, the appearance of indifference is often ‘misinterpreted as adaptive, and caregivers are misled into giving a better prognosis for outwardly cheerful patients than for their teary, anguished counterparts next door’.61 The use of data from fMRI and similar emerging technologies as evidence in tort law cases, and the implications of Damasio’s research for tort law theory, are anything but straightforward. As Eggen and Laury note, ‘fMRI images are not snapshots; rather, their meaning turns on sophisticated interpretational techniques … the images do not have an inherent meaning independent of the interpreting expert and the interpretive context.’62

study, a separate group of participants was randomly assigned to take daily doses of Tylenol or placebo, again for a 3-week period. This time, at the end of the 3-week period, participants completed the Cyberball social-exclusion task in the fMRI scanner. Participants who had been taking Tylenol showed significantly less pain-related activity in the dACC and anterior insula in response to social exclusion than participants who had been taking the placebo … Although further research will be needed to more fully understand the effects of Tylenol on socioemotional experience, this study demonstrated that Tylenol, a physical painkiller, appears to double as a social painkiller. 58 Damasio, Descartes’

Error (n 47) 67. ibid 62–65. 60 ibid 62–63. 61 ibid 67–68. 62 Eggen and Laury (n 5) 243. 59

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The practical challenges of using neuroscientific data as evidence, however, do not mitigate the fact that the availability of such data all but undermines the theoretical distinction between emotional and physical harm. Not surprisingly, this fact has already begun to influence courts.63 According to Lord Lloyd in Page v Smith, In an age when medical knowledge is expanding fast, and psychiatric knowledge with it, it would not be sensible to commit the law to a distinction between physical and psychiatric injury, which may already seem somewhat artificial, and may soon be altogether outmoded. Nothing will be gained by treating them as different ‘kinds’ of personal injury, so as to require the application of different tests in law.64

If it is the case that emotional harms can be mapped and measured, then they are, in theory, just as objectively verifiable as physical harms. Contra leading tort authorities, therefore, we contend that an fMRI scan of an emotionally traumatised brain offers proof that, while it may be more difficult to interpret and assess at present, is no less ‘conclusive’ than an X-ray of a broken bone. Moreover, an award of damages for emotional harm poses no greater difficulty with respect to evidence than awards of damages for pain and suffering or other non-pecuniary awards.65 If a plaintiff has a claim for a valid emotional injury, the prospect of floodgates is not persuasive: a wrong has been done. If it extends to a large number of people, so be it. If the defendant physically injures a large number of people, we do not shy from holding him accountable, so neither should we in the case of emotional injury.

IV. Clarifying and Establishing the Right Reasons for the Differential Treatment: Defining Emotion in Tort Law If emotional pain is as physiological and measurable as physical pain, how can it be that our emotional reactions are more under our control than our physical reactions? Neuroscience provides what seems to be an irrefutable argument as to the substantial physiological similarity between these two types of painful experience. In this section, we argue that tort law’s implicit ideal of self-sufficiency is not, in fact, grounds for its continued differential treatment of emotional and physical harm. In other words, neuroscientific research that supports a materialist account of emotion as non-intentional and pre-cognitive need

63 E Kontorovich argues that ‘tort liability for emotional distress has expanded’: see ‘Mitigation of Emotional Distress’ (2001) 68 The University of Chicago Law Review 491, 493–96 for a survey of relevant cases and examples. See also J Diamond, ‘Rethinking Compensation for Mental Distress: A Critique of the Restatement (Third) §§ 45–47’ (2008–09) 16 Virginia Journal of Social Policy and Law 141. 64 Page v Smith (n 20) 188. See also Molien v Kaiser Found Hosps 616 P 2d 813, 814 (Cal 1980) 26 where the court stated that emotional distress ‘may be fully as severe and debilitating as physical harm.’ 65 The so-called soft sciences have also shed significant doubt on the distinction between the two types of harm. Most notably, David DePianto has conducted studies to show that subjective well-being is statistically more correlated to one’s emotional health than to one’s physical health. D DePianto, ‘The Hedonic Impact of “Stand-Alone” Emotional Harms: An Analysis of Survey Data’ (2012) 36 Law and Psychology Review 115, 137 and 141. See also C Sunstein, ‘Illusory Losses’ (2008) 37 Journal of Legal Studies 157.

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not undermine this differential treatment if we ground it, not in control and individual responsibility, but in the idea that the subjective inner states of one person cannot furnish a legal obligation in another. This argument draws on a formalist understanding of private law, and thus it explains away the differential treatment. On this understanding, the law only appears to treat emotional and physical harm differently, but is in fact consistent in its distinction between subjective feelings and objective injuries. We also recognise, however, that this formalist answer might not satisfy anyone except legal formalists. Our object here is to recognise that, on an intuitive and practical level, law does treat emotional harm differently from physical harm, and to provide some sort of substantive explanation for this. To this end, we provide what has heretofore been lacking in tort law doctrine and scholarship: we address the fundamental question of what is an emotion. In so doing, we hope to respond to critics from all sides.

A. The Formalist Account: Tort Law’s Consistency Let us return to Lord Wensleydale’s statement of the exclusionary rule: Mental pain or anxiety the law cannot value, and does not pretend to redress, when the unlawful act complained of causes that alone; though where a material damage occurs, and is connected with it, it is impossible a jury, in estimating it, should altogether overlook the feelings of the party interested.66

On one level, this is a statement about what kinds of harms give rise to standalone claims in private law. According to one interpretation of tort law, harm by itself should not be the criterion of recovery. To illustrate: I choose to set up a competing coffee shop next door to yours. It is foreseeable that in so doing I harm your business and as a consequence harm you and those who rely upon you financially. If you were a close friend or a relative, we might criticise my behaviour as inconsistent with the good and value of friend- or kinship, but no one would argue that you could sue me. In order to have standing before a court, I must have violated some legal obligation I bore toward you. The flipside of this is that you must bear a correlative right against me not to harm you in this way.67 The law surrounding emotional wrongdoing reflects, or once reflected, this distinction between harms that were not, on their own, legally cognisable, and wrongs, understood as violations of legally recognised rights, that were. Lord Wensleydale did not foreclose the possibility of recovery for emotional distress. Plaintiffs could recover for pain and suffering if this harm was a consequence of another wrong done to them. In the same way, if I physically injure you and you can no longer run your profitable coffee shop, I am liable for the full extent of your consequential economic losses. But what about a standalone claim for emotional distress? Just like the law dealing with recovery for standalone economic losses, the law with respect to independent emotional suffering is more restrictive than the law relating to physical suffering. Put another way, this stringency is not an exception to the general doctrines of tort law, but rather an e xpression

66 67

Lynch (n 8) 863. See n 9 above.

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of them. More specifically, the requirement of a ‘visible and provable’ illness in IIED68 and the ‘reasonably robust’ plaintiff requirement in NIED reflect, respectively, tort law’s more basic prerequisites: (i) the de minimis threshold for injury and (ii) the concept of reasonableness. It is a legal truism that the law does not concern itself with small or trifling matters. This is expressed in the maxim, de minimis non curat lex. The de minimis threshold exists, but is often not explicitly discussed, in every tort. The tort of negligence expresses this as the requirement that the plaintiff suffer ‘actual loss’.69 While there is no loss requirement for intentional torts stemming from the writ of trespass vi et armis, a plaintiff must establish that the defendant violated her recognised legal interest. The rights protected by these intentional torts are either to the exclusive say-so with respect to what others might do to one’s physical person (battery, false imprisonment, for example) or to the exclusion of others from one’s personal or real property (for example, trespass to chattels, trespass to land). Tort law, by excluding stress, strain, upset, and anxiety, and requiring that the plaintiff either demonstrate a visible or provable illness in the case of IIED, or a recognisable psychiatric illness in the case of NIED, is simply setting the threshold for what counts as an actionable interference with a legal right.70 The de minimis requirement, itself, reflects and embodies an even more basic principle that underlies all of tort law: we, as individuals, are permitted to act freely in this world—ie, we may pursue self-chosen ends in self-chosen ways without attracting legal attention, provided that we do not unreasonably interfere with the (formally) equal freedom of another to do the same. The particular instantiation of what is considered reasonable and what is not is, of course, contentious and context-dependent, but the general idea that my freedom of action ends at the point when I unreasonably interfere with yours seems axiomatic. The tort of battery that holds defendants liable for the mere physical touching of another that is harmful or offensive expresses this limit clearly. My freedom to wave my fist in the air ends at your nose. But also, I am free to make incidental physical contact with others—even contact that is harmful or that they might personally find offensive—if it is part of the giveand-take of ordinary life. Certain physical contacts are deemed not to be batteries because they are part of the ordinary social norms, for example, rough-housing on the playground would not necessarily be considered a battery. Likewise, passengers who brush against one another on a crowded bus are not considered batterers. If my fellow bus passenger publicly announces that he does not consent to anyone jostling him and that he will sue anyone who indeed does jostle him, this declaration does not turn his claim into an actionable one. This is because there is no wrong with respect to physical contact that is reciprocally reasonable. 68 A similar argument could be made with respect to the ‘recognised psychiatric illness’ requirement for NIED. One could argue that the RPI threshold is higher than the ‘visible and provable’ illness threshold, but exploration of this issue and whether or not the difference can be reconciled (which we believe it can) is beyond the scope of this chapter. 69 For a recent judicial discussion of this requirement, see the English Court of Appeal decision of Greenaway v Johnson Matthey Plc [2016] EWCA Civ 408 [30] (Sales LJ). 70 In Heighington v Ontario (1987) 60 OR (2d) 641 (HC) damages were recoverable for IIED for recognisable psychiatric disorders, but not for stress, strain, upset, or anxiety. See also: Wipfli v Britten (1982) 22 CCLT 104 (BCSC); Hasenclever v Hoskins (1988) 47 CCLT 225 (Ont Div Ct); Sopinka (Litigation Guardian of) v Sopinka (2001) 55 OR (3d) 529 (SCJ). Note, however, in Tran v Financial Debt Recovery Ltd (2000) 2 CCLT (3d) 270 (Ont SCJ), rev’d on other grounds (2001) 40 CCLT (3d) 106 (Ont Div Ct), the court stated that the plaintiff was entitled to recover for emotional harm falling short of a psychiatric condition or illness. It is potentially interesting to note that Tran was authored by Justice Molloy, the same justice who took a more lenient approach to emotional harm in Mason (n 23).

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Thus, it is not the case that the ‘visible and provable’ illness requirement in IIED sets a different standard for emotionally harmed plaintiffs to recover than that set for physically harmed plaintiffs. Rather, it exemplifies a different understanding of what is a reasonable constraint on emotional touching from what is a reasonable constraint on physical touching. It is unreasonable intentionally to cause in someone a visible and serious illness, just as it is unreasonable to punch someone in the nose. There is no way a defendant could argue that telling the kind of practical joke that formed the cause of action in Wilkinson v Downton (the defendant led the plaintiff to believe that her husband had been horrifically injured) was part of the give-and-take or live-and-let-live of ordinary life. Such ‘jokes’ are not equivalent to jostling someone on the subway. It is not reasonable for one to impose this exercise of ‘freedom’ on someone without expecting to bear the attendant costs. The concept of reasonable and reciprocal limits of freedom is also expressed in the ‘thinskulled plaintiff rule’. If I have committed a legally cognisable wrong against you, then I am liable for the full extent of the damages you in fact suffer. This simply illustrates a basic principle in the law of remedies: you pay for what you damaged; or, you break it, you buy it. If it happens that you broke an expensive vase or punched someone with a glass jaw, so be it. The thin-skull rule, however, does not transform something that is not a legally cognisable wrong—ie, something that is not an overstepping of the bounds of reciprocal freedom—into something that is. For example, let us imagine that you bump into me negligently and, unbeknownst to you, I have no sense of equilibrium whatsoever and I flop to the ground like a professional soccer player. You are not liable to me in negligence just because I happen to suffer a calamitous injury as a result of your carelessness. This is because your action did not interfere with a right that I had against you. I did not have a right against your careless jostling in the first place. I have no standing to sue you just because I happened to suffer immensely because of it. This situation is directly analogous to the robust plaintiff requirement in NIED. Here, a salient difference between negligent infliction of emotional harm and negligent infliction of physical harm is the requirement that the plaintiff must be of ‘reasonable fortitude and robustness’ or ‘customary phlegm’ to recover for the former, but is taken as the defendant finds her for the latter.71 This means that even if the plaintiff is acknowledged as suffering a recognised psychiatric illness, she will not recover if the court finds that an ordinary person would not have succumbed to such an illness.72 In Mustapha, there was no doubt as to the sincerity and severity of Mr Mustapha’s suffering: He pictures flies walking on animal feces or rotten food and then being in his supposedly pure water. The worst thought was that his wife would carefully sterilize a bottle, for the health and safety of his baby daughter but then would put into that bottle, formula made with Culligan water. … Mr. Mustapha’s self description is that he could not get the fly in the bottle out of his mind, he had nightmares, he was only sleeping four hours or so a night, he has been unable to drink water since 71 Hay (or Bourhill) v Young [1942] 2 All ER 396 (HL); Duwynv Kaprielian (1978) 22 OR (2d) 736 (CA); Vanek (n 25); Mustapha (SCC) (n 20); and Bain v Black & Decker Canada (1989) Inc 2009 CarswellOnt 3987 (SCJ) (WL Can). 72 As noted in Solomon (n 26) 416, ‘In Clark v Scotiabank (2004) 25 CCLT (3d) 109 (Ont SCJ), the plaintiff suffered depression after he was denied a loan based on a negligent report of his credit status by the defendant. While the court acknowledged that he suffered a recognizable psychiatric illness, it found that a person of reasonable fortitude would not have suffered such illness as the result of an erroneous credit report.’

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the incident, he has lost his sense of humour and instead become argumentative and edgy, he has been constipated, is bothered by revolting mental images of flies on feces etc., can no longer take long and enjoyable showers and instead, after lengthy treatment, can only take perfunctory showers with his head down so the water does not strike his face. It took lengthy treatment before he could drink coffee made with water. He has to take a variety of medications which he says leave him feeling that he is not in full control and draggy. He can’t get up and get off to work in the mornings as he always used to. He has lost clients because of the changes in his personality and mood and also because of the reduction in his previous skills as a hairstylist. He has lost interest in, and ability to perform sexually. He had initial complaints of nausea and present complaints of constant, unexplained abdominal pain or discomfort.73

Notwithstanding Mr Mustapha’s suffering, recovery was denied because his reaction was ‘abnormal’ and ‘hypersensitive’: The appellant’s reaction to the fly-in-the-bottle incident was ‘abnormal’, a product of his ‘particular hypersensitivity’ …; it was not the response of the ‘average sensitive’ person…; nor was it the response of a person of ‘reasonable fortitude and robustness.’ These objective elements are essential to the psychiatric harm analysis.74

If my carelessness causes emotional distress in you because you happen to be emotionally sensitive, I will not be liable. It cannot be the case that your subjective frailty changes the scope of my freedom to act. If this were so, your unreasonable needs would hold me hostage. In other words, you would be subjecting me to an unreasonable limit on my freedom. The law of nuisance provides a helpful illustration of tort law’s resistance to the legitimacy of demands from extra-sensitive plaintiffs. In Rogers v Elliott, the plaintiff was suffering from heatstroke.75 The ringing of church bells aggravated his illness to the point where he was having seizures every time the defendant’s bell tolled. The court found that it could not be the case that an extra-sensitive plaintiff ’s needs could define matters of right and wrong as between the parties. Why not? Because the plaintiff ’s demands were unreasonable vis-à-vis the defendant. I cannot ask that you take extra special care with respect to me, all else being equal. Doing so would not reflect our status as formal equals. Doing so would allow one individual unilaterally to set the terms of their engagement based on a subjective internal state.

B. Defining Emotion in Tort Law The de minimis threshold and the reasonableness requirement suggest an underlying conceptual consistency in tort law’s treatment of harm per se, but do not, in themselves, offer a response to changing understandings of emotion. Scientists’ ability to locate and, to some degree, measure the physiology of emotion suggests that we have much less control over our emotional responses to events and stimuli than the current consensus in tort law theory would suggest. In this light, tort law’s implicit adherence to neo-Stoic ideals of control and autonomy is problematic, or at the very least begs a closer look. The ‘involuntary triggering’ of emotional responses does not, in itself, dictate how tort law ought to define a 73 Mustapha v Culligan [2005] OJ No 1469, 32 CCLT (3d) 123 (SCJ) [8] and [194]. These paragraphs from the trial decision were excerpted and quoted at Mustapha (ONCA) (n 21) [11]. 74 Mustapha (ONCA) (n 21) [53]. See also [51]–[52]. 75 Rogers v Elliott 146 Mass 349, 15 NE 768 (1888).

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legally cognisable emotional injury, but it does demand that tort law root this definition in a clearer and more nuanced conception of emotion.76 Martha Nussbaum has defended what she calls a neo-Stoic conception of what emotions are and what role they should play in social and political life.77 She agrees with the Greek and Roman Stoics that emotions are ‘appraisals or value judgments, which ascribe to things and persons outside the person’s own control great importance for that person’s own flourishing’, but she rejects the Stoic normative position that these judgements are mistaken and thus that emotions must be extirpated in the pursuit of wisdom and happiness.78 Instead, she champions emotions as crucial judgements of value, as ‘eudaemonistic’, insofar as they ‘provide the animal [and the human animal] with a sense of how the world relates to its own set of goals and projects’.79 Interestingly, Nussbaum’s redirection of the Stoic model of emotion places the question of control front and centre, but reverses its aim: rather than considering the extent to which we are able to control our emotional reactions, Nussbaum argues that our emotions are evaluative responses to a world that is beyond our control. Anger, grief, and resentment are indices of our vulnerability to the inevitable slings and arrows; love, joy, compassion are, likewise, expressions of our shared need for human bonds and belonging. Surely, she is right. But Nussbaum skirts the implications of rejecting the Stoic quest for apathy by focusing only on the public goods gained by a politics of love and compassion. Tort law, by contrast, cannot ignore the dark side of human emotion: even if we agree with Nussbaum that emotions involve judgements as well as involuntary physical reactions, we must also agree that emotions, qua human, are highly fallible judgements, liable to irrationality, failure, and self-interest. What is needed here is a non-reductive conception of emotion in tort law, one that recognises both the physiological and evaluative aspects of emotional experience. Aristotle, first in Nicomachean Ethics, and more fully in Rhetoric and De anima, considers the passions neither as purely physical, nor as purely cognitive phenomena, but as constituting a crucial link between the soul, the body, and the socio-political world that calls for virtuous action.80 Virtue is, Aristotle writes, ‘concerned with passions and

76

Griffiths (n 4) 243. Nussbaum explores various aspects of Stoic thought and its social and political implications in The Therapy of Desire (n 42) and Upheavals of Thought: the Intelligence of Emotions (Cambridge, Cambridge University Press, 2001). 78 Nussbaum, Upheavals of Thought (n 77) 90. 79 ibid 117. 80 D Ross (tr), Aristotle, Nicomachean Ethics (Oxford, Oxford University Press, 2009) II.6, 1105b; W Rhys Roberts (tr), Aristotle, Rhetoric (New York, Modern Library, 1954) II.1–11; JA Smith (tr), De Anima (Oxford, Clarendon, 1931) I.1, 403a–b. For recent commentaries on Aristotle’s theory of emotion, see T Johansen, The Powers of Aristotle’s Soul (Oxford, Oxford University Press, 2012) esp 148–53; and J Dow, ‘Aristotle’s Theory of the Emotions: Emotions as Pleasures and Pains’ in M Pakaluk and G Pearson (eds), Moral Psychology and Human Action in Aristotle (Oxford, Oxford University Press, 2011). See also William W Fortenbaugh’s pioneering study, Aristotle on Emotion: a Contribution to Philosophical Psychology, Rhetoric, Poetics, Politics, and Ethics (New York, Barnes & Noble Books, 1975), as well as Nussbaum, The Therapy of Desire (n 42) 48–101 and Nussbaum, Upheavals of Thought (n 77). Much early Christian and medieval theorising of emotion follows an analogous trajectory, insofar as attempts to describe the involuntary, bodily workings of emotions, using Galenic and Aristotelian principles of physiology, were balanced by moral and religious prescriptions concerning the regulation of emotional response and expression. According to St Augustine, however, emotions are neither good nor bad in themselves, but good if directed by the will to the love of God, and bad if directed away from it. For Augustine’s views on the passions, and his critique of Stoicism, see, among others, De civitate dei 9.3–6; 14.5–24. If Stoicism teaches the extirpation of the emotions through cognitive control, Augustinian Christianity teaches the harnessing and 77

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actions’,81 while the affections are those feelings in which the soul is ‘conjoined with the body’,82 feelings that happen in the body when something affects the soul, or in the soul when something affects the body, or both, in a multi-directional flow of affect and response.83 In Book II of the Rhetoric, Aristotle turns to a thorough discussion of the emotions, for, as he explains, rhetoric depends for its success upon eliciting certain emotional responses. It is the practical aim of teaching persuasive oratory that leads him to map the emotions in the social and political sphere. He writes: The emotions are all those feelings that so change men as to affect their judgments, and that are also attended by pain or pleasure. Such are anger, pity, fear, and the like, with their opposites. We must arrange what we have to say about each of them under three heads. Take, for instance, the emotion of anger: here we must discover (1) what the state of mind of angry people is, (2) who the people are with whom they usually get angry, and (3) on what grounds they get angry with them. It is not enough to know one or even two of these points; unless we know all three we shall be unable to arouse anger in anyone. The same is true of the other emotions.84

In Book I of De Anima, Aristotle lays out his psychology of emotion, which is a materialist account, but not a reductive one. His opening query concerns whether ‘all affections [are] of the complex of body and soul, or is there any one among them peculiar to the soul by itself?’ And he concludes that ‘all the affections of soul involve a body-passion. Gentleness, fear, pity, courage, joy, loving, and hating: in all these there is a concurrent affection of the body.’ It is important to note that Aristotle’s discussion of ‘body-passions’ involves non-volitional reactions. Thus, anger is both an ‘appetite for returning pain for pain’ and, materially, a ‘boiling of the blood around the heart’. If we combine this psychological-material account with the social-psychological account provided in the Rhetoric, we find a complex conception of emotions as both bodily, nonvolitional reactions and as indices of our enmeshment in particular cultures, relationships, and value systems. This complex, non-reductive account finds contemporary, scientific support in Damasio’s hypothesis that emotions form an integral part of the brain’s r easoning processes.85 According to Damasio, moreover, ‘mental phenomena’, including emotions, ‘can be fully understood only in the context of an organism’s interacting in an environment. That the environment is, in part, a product of the organism’s activity itself, merely underscores the complexity of interactions we must take into account.’86 If a hiker sees a bear in the woods, her body will respond, via thalamus, amygdala, and endocrine system, with the affect of fear; but whether that experience of fear results in long-term trauma or a good campfire story depends upon an indeterminate number of subjective factors, including, in c hannelling of the emotions through cognitive control and through the subjection of human will to the will of God. In both models, a given emotion is properly understood as, at least, a two-part experience, first an embodied idea, or a felt judgement, followed by an intellectual decision, a judgement on the validity, nature, or significance of the feeling. See also De civitate dei 14. The following discussion of Aristotle is drawn from Anne Schuurman, ‘Pity and Poetics in Chaucer’s Legend of Good Women’ (2015) 130.5 PMLA, 1304. 81

Nicomachean Ethics (n 80) II.6, 1105b 19–28. De Anima (n 80) I.1, 403a3. 83 Johansen (n 80) 148–51. 84 Rhetoric (n 80) II.1, 1378a–b. 85 Damasio, Descartes’ Error (n 47). 86 ibid xvi. See also Brennan (n 1). 82

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this case, biographical ones—say, for instance, whether the hiker is a park warden trained to deal with bear encounters. What we might call the neo-Aristotelian approach also provides philosophical grounds for understanding certain kinds of emotional pain as productive, as opposed to the Stoic approach that wants to transcend the disturbances of emotion altogether. Aristotle seeks both to understand how to harness emotion for rhetorical and political ends, and to understand what different kinds of emotion do in social life. This approach clarifies the idea that emotional harms are different from physical harms, but not factually so and not because they are under our control; rather, they are normatively different. With a few exceptions, emotional harm is not something that the law should protect us from. This is so for two reasons. First, many experiences of emotional harm are a beneficial part of being human; they are the necessary product of being enmeshed in human relationships, a situation which is uniquely, inescapably human. Second, while affective states are involuntary and objectively measurable, an individual’s emotional response to a given affect is subjective, internal, and contingent, to the extent that another person cannot be held legally responsible for it. Indeed, there is jurisprudential support for this conception of emotions: Justice Sharpe, speaking for the Ontario Court of Appeal in Healey v Lakeridge Health Corporation, states: It seems to me quite appropriate for the law to decline monetary compensation for the distress and upset caused by the unfortunate but inevitable stresses of life in a civilized society and to decline to open the door to recovery for all manner of psychological insult or injury. Given the frequency with which everyday experiences cause transient distress, the multifactorial causes of psychological upset, and the highly subjective nature of an individual’s reaction to such stresses and strains, such claims involve serious questions of evidentiary rigour.87

In sum, private law does not protect subjective feelings. It protects only objective injuries. Fairness between the parties demands objectivity.88 This, of course, does not mean that harmful emotional states intentionally or negligently inflicted lie outside of tort law’s ambit. Both the torts of IIED and NIED recognise a right to a level of emotional security against unreasonable interference by another. Hurt subjective feelings, however, are not recoverable and the plaintiff must prove an objective mental injury. What about the tort of assault? Assault has no requirement of a serious or provable illness or a recognised psychiatric illness. Indeed, it is actionable without any proof of harm whatsoever. Assault, one might argue, is a tort of trespass to the emotions. Assault is often ignored in recent discussions of emotional harm.89 Negligent infliction of emotional distress (and to a lesser extent IIED) has been the poster-child for emotional harm research. Assault protects our emotional well-being in that it protects our entitlement to be free from the threat of harmful or offensive physical contact.

87

Healey (n 21) 419–20 (emphasis added). See A Ripstein, ‘Equality, Luck and Responsibility’ (1994) 23 Philosophy and Public Affairs 3. 89 A notable exception is J Kircher, ‘The Four Faces of Tort Law: Liability for Emotional Harm’ (2006–07) 90 Marquette Law Review 789, who provides an extensive analysis on the tort of assault as a protector of emotional interests. 88

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Does the tort of assault protect our emotional security full stop? Does this mean, therefore, that we do in fact have a standalone right to be free from unwanted emotional ‘contact’? For the reasons we set out below, we do not think so. First, assault does not protect the subjective, felt experience of the plaintiff. It is important that the plaintiff claiming assault does not need to experience subjective fear. Assault, instead, protects the objective entitlement to be free from threats; in this way, the tort of assault is parasitic on the tort of battery. We are entitled to be free from unwanted harmful or offensive physical contact by others. The rationale for this is that we cannot truly be free to go about our daily lives and pursue our chosen objectives if we are constantly at risk of others physically interfering with our person. We are similarly not free if we are at risk of others threatening to interfere physically with our person. I will not be able to plan my life if the threat of unwanted potentially harmful and physical contact awaits me. The threats that assault forbids are those that coerce me into behaving in ways I would otherwise choose not to. Thus, the subject matter of assault—the sphere of freedom that it protects—is the self-same as that of battery. By virtue of threats, a person can make another do many things that the other would rather not. This is just as much an infringement on one’s freedom as carrying out those threats. Thus, we have a right not to be touched physically, but no right not to be touched emotionally. A world in which we are not free from physical contact without our consent is an unimaginable one. We would not be able to use any of our means in a free way and we could not pursue our goals. But equally unimaginable is a world in which we are entitled to be free from emotional contact without our consent. The types of beings we are, social beings, necessitates spontaneous, sometimes even unwanted social and emotional contact. The intention to affect another person emotionally and the capacity to be thus affected are part of what it means to be human. To forgo emotional contact is to forgo humanity. Recall our earlier discussion about the proposed equivalence of being jostled on the subway and feeling grief at the loss of a loved one. Both experiences are similar in that they involve normal and necessary reactions to living in society. Grief, understood thus, is a productive emotion, one which it is normal and necessary for us to experience qua human beings at the loss of a loved one. By contrast, certain ‘unproductive’ emotional responses—ie, responses that rise to the level of a serious and visible illness or a recognised psychiatric illness, to use the language of the law—like the emotional response generated by the tort of assault, we do have a right not to have inflicted upon us by others. It is a reasonable limit of another’s freedom that he not intentionally or negligently cause such an emotional response in another. This limit is objective and reciprocal. Like the tort of nuisance, extra-sensitive plaintiffs cannot recover. Only when one’s actions would result in a serious psychological illness in a person of reasonable fortitude will one be held legally responsible for the consequent harm.

V. Conclusion When we combine the fact that neuroscientific accounts show the extent to which affect is non-volitional, with the idea that a ‘full-fledged emotion’ involves both non-volitional affect and a multitude of cognitive elements, we can begin to formulate a new justification

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for the differential treatment of emotional harm in law. One person cannot be held responsible for another’s emotional state, not because the emotional response lies within the sufferer’s control, but because it does not lie within the actor’s control. Our more nuanced understanding of emotion is one that is not merely physiological affect and also not merely a cognitive judgement about how we ought to feel in given scenarios. Rather, emotion consists of both affect and indices of enmeshment (cultures, relationships, and values). Because of this, a defendant cannot be constrained with respect to how what she has done has made someone else feel. To do so would be to impose an unintelligible limit on freedom, a limit that fails to treat the defendant and plaintiff as equals90 and that fails to acknowledge the complex and enmeshed status of emotion in our lives.

90 The tort of IIED makes sense using this understanding of emotion because the defendant cannot say ‘how could I have known that my conduct would cause emotional upset in the plaintiff?’ Why not? Because her conduct was geared to cause precisely this type of harm. The requirement of a ‘visible and provable’ illness also serves to protect the equal treatment of plaintiff and defendant. The requirement is not about precluding fraudulent claims, but rather to make sure that the limit imposed on the defendant’s conduct is one that is objective, ie, not limited by the subjective passions or situation of the plaintiff. Recall, the reason we don’t have an obligation with respect to someone else’s emotional state is not that that other person has control over his emotions. No, rather, the reason we are not responsible is that we do not have control over the other’s emotional response to us. This is because of the enmeshed nature of emotions as well as their affective component. The defendant in a case of IIED, by contrast, asserts by her very action that she does in fact have control over the plaintiff ’s emotional reaction—this is her precise objective: to harm the plaintiff emotionally. Therefore, this defence of lack of control does not lie in her mouth.

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22 The Interaction Between Defamation and Privacy DAVID ROLPH*

I. Introduction The common law has always demonstrated a tenderness, where reputation is concerned. The tort of defamation has provided a high level of protection for reputation for many centuries. The ecclesiastical jurisdiction over defamation claims and the statutory offence of scandalum magnatum predate the royal courts’ recognition of the tort of defamation.1 English law has protected reputation, under the rubric of defamation, in various forms, continuously, for over eight centuries.2 By contrast, the common law has consistently denied a general right to privacy.3 Privacy may be indirectly or incidentally protected by other causes of action,4 but the common law has, until recently, refused directly to protect privacy. This is the way the common law developed historically. Such a course is not satisfactory, conceptually. Recent defamation scholarship has focused attention on the concept of reputation—the central interest protected by the tort of defamation but largely neglected

* The author would like to thank Joanna Connolly for her excellent research assistance. The research in this chapter has been funded in part under the Australian Research Council Discovery Projects funding scheme (project number DP120103538). 1 As to the ecclesiastical jurisdiction over defamation claims, see V Veeder, ‘The History and Theory of the Law of Defamation’ (1903) 3 Columbia Law Review 546, 550–55; W Holdsworth, ‘Defamation in the Sixteenth and Seventeenth Centuries’ (1924) 40 LQR 302, 304, 309; R Donnelly, ‘History of Defamation’ (1949) Wisconsin Law Review 99, 103–06, 108–09; R Helmholz, ‘Canonical Defamation in Medieval England’ (1971) 15 American Journal of Legal History 255; D Rolph, Defamation Law (Pyrmont, Thomson Reuters, 2016) [3.20]. As to the statutory offence of scandalum magnatum, see J Lassiter, ‘Defamation of Peers: The Rise and Decline of the Action for Scandalum Magnatum, 1479–1773’ (1978) 22 American Journal of Legal History 216; Rolph ibid [3.50]. 2 As to the history of defamation law generally, see D Rolph, ‘Sources of Defamation Law’ in J Gleeson, J Watson and E Peden (eds), Historical Foundations of Australian Law (Leichhardt, Federation Press, 2013) Vol II, 106–26. 3 See, eg, Victoria Park Racing and Recreations Ground Co Ltd v Taylor (1937) 58 CLR 479, 494 (Latham CJ); Cruise v Southdown Press Pty Ltd (1993) 26 IPR 125, 125 (Gray J); Australian Consolidated Press Ltd v Ettingshausen [1993] NSWCA 10 (Gleeson CJ, Kirby P and Clarke JA) 26–27 (Kirby P); GS v News Ltd (1998) Aust Torts Reports ¶81,466, [64,913]–[64,915] (Levine J). 4 See, eg, Plenty v Dillon (1991) 171 CLR 635, 647 (Gaudron and McHugh JJ); TCN Channel Nine Pty Ltd v Anning [2002] NSWCA 82, (2002) 54 NSWLR 333, 346 (Spigelman CJ) (trespass to land).

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hitherto in academic literature on defamation law.5 A key insight from this focus is that reputation is essentially the public self of the individual—what other people think of him or her.6 Although there is a necessary interrelationship between the public and private selves of an individual, reputation has an indelibly public aspect to it.7 By definition, privacy is concerned with the private self of the individual. Reputation and privacy are complementary aspects of an individual’s persona. To protect reputation but not privacy means to protect the public, but not the private, self of the individual. As it has developed historically, the common law has adopted a bifurcated approach to the legal protection of dignitary or personality interests. As a matter of principle, though, it is not at all clear why the common law protected reputation highly and privacy not at all. Arguably, if one were devising the legal regulation of dignitary or personality interests de novo, one would have conferred a higher level of protection on privacy rather than reputation, given that the public interest is implicated in reputation in a way that it is not in privacy. As reputation is an individual’s public self—in essence, what other people think of an individual—other people have an interest in forming and expressing a view about that individual’s public self. The tort of defamation then seeks to strike a balance between the protection of reputation and freedom of speech.8 Almost by definition, there is no public interest in an individual’s privacy, at least not in invading it. It is important to recognise that the common law’s historical bifurcation of dignitary or personality interests is not the only possible legal treatment of reputation and privacy. International human rights instruments and civil law systems adopt a more holistic and integrated approach to the protection of reputation and privacy.9 They provide a different way of conceptualising the relationship between reputation and privacy. The interaction of defamation and privacy is an increasingly important issue in jurisdictions such as England and Wales, New Zealand, Canada and Australia, where, over the last three decades, there have been, in varying ways and to varying degrees, developments in the legal protection of privacy. However, caution may be necessary when looking to international human rights law, or civil law systems, for ways to deal with problems posed by the interaction between defamation and privacy. This is because many of these problems arise as a result of the particular way in which the common law has developed its protection for reputation, privacy and freedom of speech, as well as the particularity of the common law method of reasoning. Given the nascent state of privacy protection, relative to that of reputation, and the wide range of potential problems which may arise in the relationship between defamation and privacy, it is not possible to analyse comprehensively the issues presented by the interaction

5 The landmark article on the concept of reputation in defamation law is R Post, ‘The Social Foundations of Defamation Law: Reputation and the Constitution’ (1986) 74 California Law Review 691. For more recent contributions, see D Rolph, ‘Dirty Pictures: Reputation, Defamation and Nudity’ (2006) 10 Law Text Culture 101; L McNamara, Reputation and Defamation (Oxford, Oxford University Press, 2007); D Rolph, Reputation, Celebrity and Defamation Law (Aldershot, Ashgate, 2008). 6 Plato Films Ltd v Speidel [1961] AC 1090, 1138 (Lord Denning). 7 Rolph (n 1) [2.20]. 8 Lange v Australian Broadcasting Corporation (1997) 189 CLR 520, 568 (per curiam); Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575, 599 (Gleeson CJ, McHugh, Gummow and Hayne JJ). 9 Universal Declaration of Human Rights (UDHR) Art 12; International Covenant on Civil and Political Rights (ICCPR) Art 17.

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of defamation and privacy. Instead, this chapter will focus on a number of key issues which have already arisen, such as the approach to injunctive relief in defamation and privacy, vindication as a function of remedies for defamation and privacy and the concept of ‘false privacy’. It will examine the impact of a cause of action for invasion of privacy, in some form, on the well-established defences to defamation, qualified privilege and fair comment. These aspects of the relationship between defamation and privacy all raise difficult issues for the coherent and orderly development of the law. The failure to consider systematically this relationship, and the impact of recognising a cause of action for invasion of privacy on the well-established cause of action for defamation, can have unintended consequences and lead to incoherence in the law of obligations. In examining these issues, this chapter aims to contribute to a fruitful and important new line of inquiry: the interaction of defamation and privacy.

II. Why Explore the Interaction Between Defamation and Privacy? The problem of the interaction between defamation and privacy has only arisen recently because it has only been comparatively recently that courts in England and Wales, New Zealand, Canada, and, to a lesser extent, Australia, have recognised, in some form, a cause of action for invasion of privacy. The first of these jurisdictions to recognise a cause of action in privacy was New Zealand. Through a series of first-instance decisions from the mid-1980s onwards, New Zealand courts began to recognise a tort of invasion of privacy for the public disclosure of private facts.10 The existence of the tort was confirmed almost two decades later in the New Zealand Court of Appeal’s decision in Hosking v Runting.11 More recently, New Zealand courts have recognised another tort of invasion of privacy for intrusion upon seclusion.12 Following the enactment of the Human Rights Act 1998 (UK), which incorporated the European Convention on Human Rights (‘ECHR’) into domestic law, English courts accommodated the right to a private life under Article 8 of the ECHR by adapting the existing equitable cause of action for breach of confidence to create a ‘tort’ of misuse of private information.13 English courts have rejected the invitation to recognise

10 See Tucker v News Media Ownership Ltd [1986] 2 NZLR 716, 733 (McGechan J); Bradley v Wingnut Films Ltd [1993] 1 NZLR 415, 432 (Gallen J); P v D [2000] 2 NZLR 591, 601 (Nicholson J). This tort is derived from United States privacy law. United States privacy law has influenced the development of New Zealand and Canadian privacy law most directly. It recognises a fourfold tort of invasion of privacy, comprising unreasonable intrusion upon seclusion; appropriation of an individual’s name or likeness; public disclosure of private facts; and placing an individual in a false light. This taxonomy of privacy interests is derived from W Prosser, ‘Privacy’ (1960) 48 California Law Review 383, 389 and is now reflected in the American Law Institute, Restatement (Second) of Torts, (1977) §652A. 11 Hosking v Runting [2005] 1 NZLR 1, 6, 32 (Gault P and Blanchard J), 60–62 (Tipping J). 12 C v Holland [2012] 3 NZLR 672, 696 (Whata J); R v Hallett [2013] 3 NZLR 407. 13 The landmark case in the development of the cause of action for misuse of private information was the House of Lords’ decision in Campbell v MGN Ltd [2004] 2 AC 457. See esp 465–66 (Lord Nicholls of Birkenhead), 472–73 (Lord Hoffmann), 480 (Lord Hope of Craighead), 494–95 (Baroness Hale of Richmond). The case law on misuse of private information is now substantial. For the description of this adaptation of the equitable cause of

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a further, or larger, cause of action for invasion of privacy outside of the tort of misuse of private information.14 In Canada, certain provinces create a statutory cause of action for invasion of privacy.15 In addition, the Ontario Court of Appeal found that the common law recognised a tort of invasion of privacy for intrusion upon seclusion,16 and, more recently, the Ontario Superior Court has recognised a tort of invasion of privacy for publication of private facts.17 In Australia, the High Court gave some encouragement for the development of greater and more direct protection of privacy in its decision in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd.18 Subsequently, two inferior courts have recognised a tort of invasion of privacy19 but superior courts have been either unwilling to recognise that ABC v Lenah Game Meats provides the impetus for the development of greater privacy protection,20 or have preferred to adapt the existing equitable cause of action for breach of confidence, but not so as to recognise a separate cause of action juridically distinct from breach of confidence.21 The lack of judicial development of privacy law in Australia is largely attributable to the absence of suitable test cases being brought before the courts. By contrast, the issue of privacy has been the subject of intense interest to law reform bodies and parliamentary committees. During the last eight years, the Australian Law Reform Commission ‘ALRC’ has twice reported on privacy.22 The New South Wales Law Reform Commission ‘NSWLRC’, the Victorian Law Reform Commission ‘VLRC’ and the South Australian Law Reform Institute ‘SALRI’ have also reported on privacy.23 A number of parliamentary committees, at both federal and state level, have addressed privacy in the context of examining issues such as drones and ‘revenge porn’. All these

action for breach of confidence as a ‘tort’ of misuse of private information, see 465 (Lord Nicholls of Birkenhead); Vidal-Hall v Google Inc [2015] 3 WLR 409, 417–28 (Tugendhat J). 14 See Wainwright v Home Office [2004] 2 AC 406, 424 (Lord Hoffmann); Mbasogo v Logo Ltd [2007] 2 WLR 1062. 15 Civil Code of Quebec SQ 1991, c 64 ss 3, 35–37 (Quebec); Privacy Act 1996 RSBC c 373 (British Columbia); Privacy Act 1978 RSS c P-24 (Saskatchewan); Privacy Act CCSM s P125 (Manitoba); Privacy Act 1990 RNSL c P-22 (Newfoundland and Labrador). 16 Jones v Tsige (2012) 108 OR (3d) 241, 260, 2012 ONCA 32 [46] (Sharpe JA); applied in Action Auto Leasing & Gallery Inc v Gray [2013] OJ No 898; Trout Point Lodge Ltd v Handshoe, 2012 NSSC 245. 17 Doe 464533 v D 2016 ONSC 541 [45]–[46] (Stinson J). 18 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 225–26 (Gleeson CJ), 248–49 (Gummow and Hayne JJ), 328 (Callinan J). 19 Grosse v Purvis (2003) Aust Torts Reports ¶81-706, [64,183]–[64,187] (Skoien DCJ); [2003] QDC 151; Doe v Australian Broadcasting Corporation [2007] VCC 281 [164] (Hampel J). 20 Kalaba v Commonwealth of Australia [2004] FCA 763 [6] (Heerey J); Kalaba v Commonwealth of Australia [2004] FCAFC 326 [8], [13] (Tamberlin, North and Dowsett JJ). See also Gee v Burger [2009] NSWSC 149 [53] (McLaughlin AsJ); Chan v Sellwood [2009] NSWSC 1335 [37] (Davies J). 21 Seven Network (Operations) Pty Ltd v Australian Broadcasting Corporation [2007] NSWSC 1289 [8]–[9] (Barrett J); Giller v Procopets (2008) 24 VR 1, 35–36 (Ashley JA), 106–07 (Neave JA). See also Maynes v Casey [2011] NSWCA 156 [33]–[35] (Basten JA); Saad v Chubb Security Australia Pty Ltd [2012] NSWSC 1183 [169]–[171], [174]–[184] (Hall J). 22 Australian Law Reform Commission, Serious Invasions of Privacy in the Digital Era (Report No 123, 2014); Australian Law Reform Commission, For Your Information: Australian Privacy Law and Practice (Report No 108, 2008). 23 NSW Law Reform Commission, Invasion of Privacy (Report No 120, 2009); Victoria Law Reform Commission, Privacy Law: Options for Reform (Information Paper, 2001); South Australian Law Reform Institute, Too Much Information: A Statutory Cause of Action for Invasion of Privacy (Issues Paper No 4, 2013).

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reports have recommended the enactment of a statutory cause of action in some form.24 The issue of privacy is clearly one of great interest to courts and law reformers across these jurisdictions. Until privacy was recognised as a legally enforceable right or interest in some form, there could be no formal conflict, or overlap with defamation. Principled and conceptual difficulties arising from the interaction of defamation and other causes of action are not unknown. They have arisen in relation to defamation’s impact on a vast array of causes of action.25 The most significant overlap, or conflict, between defamation and another cause of action has been between defamation and negligence. The divergent views taken by courts across the Commonwealth to the issue of whether defamation and negligence can be concurrently pleaded, or are mutually exclusive, demonstrates that there is no single way the interaction between defamation and alternative causes of action can be negotiated.26 However, the d ifferent nature of the interests protected by defamation and privacy, being respectively the public and private selves of an individual, means that, as a cause of action for invasion of privacy is increasingly recognised, this interaction or tension will become more acute. Yet defamation and privacy are rarely analysed holistically in law reform processes. This is reflected in the many attempts to reform defamation law in Australia over the last few decades. The law reform process leading up to the introduction of the national, uniform defamation laws in Australia focused exclusively on defamation law and did not consider privacy. The exclusive focus on defamation is also characteristic of most earlier reports on defamation law reform in Australia. Similarly, the extensive law reform process in England and Wales, which culminated in the passage of the Defamation Act 2013, also did not meaningfully consider privacy, notwithstanding the significant development of privacy law in that jurisdiction. A notable exception is the New South Wales Law Reform Commission’s 1995 report on defamation. Under its terms of reference, the NSWLRC was required

24 House of Representative, Standing Committee on Social Policy and Legal Affairs, Inquiry into Drones and the Regulation of Air Safety and Privacy, Report: Eyes in the Sky (14 July 2014), Recommendation 3; Parliament of Australia, Senate Standing Committee on Legal and Constitutional Affairs, Report: Phenomenon Colloquially Referred to as ‘Revenge Porn’ (25 February 2016), Recommendation 2; New South Wales Legislative Council, Standing Committee on Law and Justice, Remedies for Serious Invasions of Privacy in New South Wales (Final Report, 3 March 2016), Recommendation 3; Victorian Parliament Law Reform Committee, Inquiry into Sexting (Final Report, May 2013), Recommendation 12. 25 See below nn 45–57 and accompanying text. 26 Australian and New Zealand courts treat defamation and negligence as mutually exclusive causes of action. In relation to Australia, see Sattin v Nationwide News Pty Ltd (1996) 39 NSWLR 32, 43–44 (Levine J); Sullivan v Moody (2001) 207 CLR 562, 580–81 (per curiam); Tame v New South Wales (2002) 211 CLR 317, 335 (Gleeson CJ), 342 (Gaudron J), 361–62 (McHugh J), 425–26, (Callinan J). In relation to New Zealand, see Bell-Booth Group Ltd v Attorney-General [1989] 3 NZLR 148, 155–57 (Cooke P); Balfour v Attorney-General [1991] 1 NZLR 519, 529 (Hardie-Boys J); South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282, 298–99 (Cooke P); Fleming v Securities Commission [1995] 2 NZLR 514, 520 (Cooke P). In the context of the Australian law, the interaction between the well-established cause of action of defamation and the imposition of a novel duty of care is expressly placed on the footing of a concern for preserving and promoting the coherence of the law, which should equally be a consideration when analysing the interaction between defamation and privacy. See D Rolph, ‘Irreconcilable Differences? Interlocutory Injunctions for Defamation and Privacy’ (2012) 17 Media and Arts Law Review 170, 187–90. English and Canadian courts treat defamation and negligence as causes of action which can be pleaded concurrently. In relation to England and Wales, see Spring v Guardian Assurance Plc [1995] 2 AC 296, 324 (Lord Goff of Chieveley), 325 (Lord Lowry), 334–35 (Lord Slynn of Hadley), 346–47, 350–51 (Lord Woolf). In relation to Canada, see Young v Bella (2006) 261 DLR (4th) 516, 536 (McLachlin CJC and Binnie J).

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to inquire into whether a separate tort of invasion of privacy was necessary in New South Wales. The NSWLRC decided it was unable to form a concluded view about this issue in the context of a review of defamation law, given that the issue required substantial research and consultation.27 Thus, it recommended the establishment of a separate inquiry into privacy as a matter of priority,28 specifically urging that such a comprehensive review should consider how a cause of action for privacy would interact with defamation law.29 In doing so, it observed that: While the interests in reputation and privacy are theoretically quite separate, the practical allocation of problems to one or other, or both, branches of the law, gives rise to great debate and controversy.30

The NSWLRC’s approach was explicitly informed by the high-profile defamation case, Ettingshausen v Australian Consolidated Press Ltd, in which a prominent rugby league player successfully sued a magazine for publishing a photograph of him showering naked.31 Ettingshausen was able to win because proof of truth alone, at that time, was not a complete defence to defamation in New South Wales. There was an additional element of public interest.32 Unsurprisingly, ACP was unable to establish that there was any public interest in the publication of a full-frontal naked photograph of the footballer. In the absence of this long-standing peculiarity of New South Wales defamation law, Ettingshausen may have found it difficult to succeed in defamation. As Kirby P (as his Honour then was) observed on appeal, the essence of Ettingshausen’s claim, viewed dispassionately, was the invasion of his privacy, not the damage to his reputation.33 The NSWLRC commented that, whether a case such as Ettingshausen v ACP should be dealt with by defamation law, or by privacy, or both, required extensive consideration. The NSWLRC’s report on defamation demonstrates then that an awareness of the interaction of defamation and privacy is not new, but importantly recognises that it is complex. Not only does privacy get neglected by law reform bodies reviewing defamation law, but defamation law also gets overlooked by law reform bodies investigating privacy. None of the many reports on privacy produced in recent years by law reform bodies gives extensive

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NSW Law Reform Commission, Defamation (Report No 75, 1995) [1.22]. ibid [1.22], Recommendation 1. ibid [2.36]. 30 ibid [2.34]. 31 Ettingshausen v Australian Consolidated Press Ltd (1991) 23 NSWLR 443; Ettingshausen v Australian Consolidated Press Ltd (unreported, SC (NSW), No 12807/91, 11 March 1993); Australian Consolidated Press Ltd v Ettingshausen (unreported, NSW CA, CA40079/93, Gleeson CJ, Kirby P and Clarke JA, 13 October 1993). As to Ettingshausen v ACP Ltd generally, see Rolph, Reputation, Celebrity and Defamation Law (n 5) ch 5. 32 See Defamation Act 1974 (NSW), s 15. This was a feature of New South Wales defamation law from the time of the passage of its first defamation legislation in 1847 until the introduction of the national, uniform defamation laws. As to the historical background of the additional element of public interest, see P Mitchell, ‘The Foundations of Australian Defamation Law’ (2006) 28 Sydney Law Review 477. The additional element of public interest was also required in other Australian jurisdictions prior to the introduction of the national, uniform defamation laws. See Civil Law (Wrongs) Act 2002 (ACT), s 127; Defamation Act 1889 (Qld), s 15; Defamation Act 1957 (Tas), s 15. These provisions have now been repealed. Under the national, uniform defamation laws, proof of substantial truth alone is a complete defence to defamation. See Civil Law (Wrongs) Act 2002 (ACT), s 135; Defamation Act 2006 (NT), s 22; Defamation Act 2005 (NSW), s 25; Defamation Act 2005 (Qld), s 25; Defamation Act 2005 (SA), s 23; Defamation Act 2005 (Tas), s 25; Defamation Act 2005 (Vic), s 25; Defamation Act 2005 (WA), s 25. 33 Ettingshausen (NSW CA) (n 31), 26–27. See also 32 (Clarke JA). 28 29

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consideration to the interaction of defamation and privacy. The Australian Law Reform Commission’s 2014 report on serious invasions of privacy in the digital era provides the most consistent engagement with the issue.34 The rare exception in which an Australian law reform body approached defamation and privacy holistically is the ALRC’s 1979 report, Unfair Publication: Defamation and Privacy. The report is now almost three decades old. It predates the significant developments in privacy law in England and Wales, New Zealand, Canada and Australia. In terms of defamation law, it predates the discernment of the implied freedom of political communication, emerging from the text and structure of the Commonwealth Constitution,35 and the emergence of internet technologies. Its utility in informing a contemporary analysis of the interaction of defamation and privacy then, is limited. Yet defamation law does influence thinking about privacy. This is significantly because the well-established nature of defamation law influences the way in which other areas of law approach the ascertainment of meaning from texts and the balance between legal regulation and freedom of speech. The constitutive role defamation law performs in thinking about regulating speech is demonstrated by the borrowings canvassed and, in many instances, recommended by law reform bodies investigating a cause of action for invasion of privacy. Defences to defamation, such as fair comment and honest opinion, absolute privilege, qualified privilege and publication of public documents, have all been considered as potential defences to a cause of action for invasion of privacy.36 Yet the appropriateness of transplanting these defences from defamation law into privacy is often not scrutinised. These defamation defences have their own histories, their own purposes and their own

34 ALRC Report No 123 (n 22). The ALRC examined defamation as a model for liability for a tort of serious invasion of privacy. It concluded it should not be used as a model, even though some of its elements and defences provide a useful point of comparison [7.44]. Regarding the fault element of the tort, the report examined strict liability standard ([7.38], [7.76]) and a requirement for proof of actual damage ([7.43]–[7.44]). It examined applicable elements of legal design, including appropriate forum [10.17]; restriction to personal interest [10.45]; nonsurvival of the cause of action for the benefit of the plaintiff ’s estate [10.47], [10.51], [10.58]; limitation periods [10.80], [10.93]; applicability of a ‘first publication rule’ [10.99]–[10.103]. Regarding defences, the report considered the applicability of defamation defences, including absolute privilege [11.81]–[11.86], publication of public documents [11.89]–[11.92], and fair and accurate reporting of public proceedings [11.93]–[11.99]. It concluded a number of defences to defamation were inappropriate for an action of invasion of privacy, including defences of qualified privilege [11.135]–[11.138], truth [11.133], innocent dissemination [11.139]–[11.140] and comment [11.134]. Finally the report examined injunctions [12.129]–[12.135] and recommended a cap on the sum of both damages for non-economic loss and any exemplary damages, which ought not to exceed the cap on equivalent damages in defamation [12.91]–[12.101], as well as drawing on other defamation principles in the assessment of damages (the role of vindication [12.24], whether the plaintiff may claim harm to reputation in a claim for invasion of privacy [12.25], damages for emotional and mental distress [12.30], factors relevant to the assessment of damages [12.42]–[12.43], effect of apologies [12.47], availability of exemplary damages [12.80]–[12.90], a pology orders [12.165]). 35 The foundational cases for the recognition of the implied freedom of political communication in Australian constitutional law were Nationwide News Pty Ltd v Wills (1992) 177 CLR 1 and Australian Capital Television Pty Ltd v Commonwealth (1992) 177 CLR 106. 36 ALRC Report No 123 (n 22) recommended the use of the defence of absolute privilege [11.81]–[11.86], publication of public documents [11.89]–[11.92], fair reporting [11.93]–[11.99]. NSWLRC Report No 120 (n 23) recommended the use of the defence of absolute privilege, fair reporting of proceedings of public concern, and innocent dissemination [6.9]; Victorian Law Reform Commission, Surveillance in Public Places, Report 18 (2010) recommended the use of the defence of privilege [7.165]–[7.166] and fair comment and honest opinion [7.167]–[7.169].

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contexts in which they ordinarily operate. Whether they are readily transposable to a cause of action for invasion of privacy may be doubted, but should at least be analysed, rather than assumed. The relationship between defamation and privacy thus far has been one of influence, then, rather than one of integrated thinking. Thinking about defamation and privacy in isolation can lead to unintended or undesirable consequences. It can undermine the perhaps overly fine calibrations of interests defamation law has refined over centuries, not by a direct consideration of whether defamation law should be changed, but indirectly and unreflectively. The NSWLRC acknowledged this possibility when it noted that ‘the introduction of privacy law concerns into the law of defamation can have a distorting effect on the function of defamation law’.37 It is important to identify with precision then, the problem. It is not simply a question of how defamation and privacy should interact. Properly understood, the issue is how should the development of a novel cause of action for invasion of privacy, in some form, affect the well-established cause of action for defamation, if at all. Framed in that way, it is now possible to turn to some of the difficult doctrinal problems at the interface of defamation and privacy.

III. Interlocutory Injunctions for Defamation and Privacy One of the most obvious and significant ways in which the recognition of a cause of action for invasion of privacy can conflict with defamation is in relation to the grant of an interlocutory injunction. The restrictive approach to injunctive relief in defamation claims is well known and well settled. The rule in Bonnard v Perryman has been accepted not only in English courts,38 but also in New Zealand and Canadian ones.39 The Australian position, established by the High Court’s decision in Australian Broadcasting Corporation v O’Neill,40 leads, in substance, to the same position.41 The restrictive approach to injunctive relief in defamation is informed by concerns such as the need for a judge not to usurp, by an interlocutory decision, the jury’s function of determining defamatory meaning and the fact that, if a publisher at trial establishes a defence of justification, he or she has committed no

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NSW Law Reform Commission, Defamation, Report 75 (1995), [2.35]. Bonnard v Perryman [1891] 2 Ch 269. As to the application of the ‘rule’ in Bonnard v Perryman, see, eg, Monson v Tussauds Ltd [1894] 1 QB 671, 694 (Lopes LJ), 697–98 (Davey LJ); Fraser v Evans [1969] 1 QB 349, 360–61 (Lord Denning MR); Hubbard v Vosper [1972] 2 QB 84, 96–97 (Lord Denning MR); Wallersteiner v Moir [1974] 3 All ER 217, 230 (Lord Denning MR), [1974] 1 WLR 991; Bryanston Finance Ltd v De Vries [1975] QB 703, 724 (Lord Denning MR); Herbage v Pressdram Ltd [1984] 2 All ER 769, [1984] 1 WLR 1160; Holley v Smyth [1998] QB 726; Greene v Associated Newspapers Ltd [2005] QB 972. 39 See, eg, McSweeney v Berryman [1980] 2 NZLR 168, 175 (Barker J); New Zealand Mortgage Guarantee Co Ltd v Wellington Newspapers Ltd [1989] 1 NZLR 4, 7 (Cooke P); Ron West Motors Ltd v Broadcasting Corporation of New Zealand (No 2) [1989] 3 NZLR 520, 541 (Cooke P); TV3 Network Services Ltd v Fahey [1999] 2 NZLR 129, 132–33 (Richardson P); Church of Scientology of British Columbia v Radio NW Ltd [1974] 4 WWR 173, 176–78 (Branca JA); Canada Metal Co Ltd v Canadian Broadcasting Corporation (1975) 55 DLR (3d) 42, 43 (Stark J); Rapp v McClelland and Stewart Ltd (1992), 34 O (2d) 452, 455 (Griffiths J). 40 Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, [2006] HCA 46. 41 D Rolph, ‘Showing Restraint: Interlocutory Injunctions in Defamation Cases’ (2009) 14 Media and Arts Law Review 255, 290. 38

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wrong.42 To restrain a publisher on an interlocutory basis, in circumstances where he or she may have committed no tort, will involve a violation of his or her freedom of speech. Thus, the particular concerns underpinning the restrictive approach to injunctive relief in defamation claims are the common law’s long-standing aversion to prior restraint and its commitment to freedom of speech.43 Significantly, the common law’s approach to interlocutory injunctions in defamation cases is one area in which defamation law explicitly gives precedence to freedom of speech over its usual tender concern for the protection of reputation.44 Defamation law’s approach to interlocutory injunctions is particular to it. Other causes of action more readily support the grant of an interlocutory injunction, usually because they do not implicate freedom of speech as centrally as defamation does. Prospective plaintiffs, knowing that they are most unlikely to obtain an interlocutory injunction for defamation, may elect to frame their claim for relief in some other cause of action. It is unsurprising, then, that the issue has arisen as to what approach a court should adopt to an application for an interlocutory injunction in circumstances where a plaintiff could, or does, frame the cause of action in defamation as well, as an alternative cause of action. The range of causes of action plaintiffs have attempted to rely on, as an alternative to defamation, is extensive. It includes breach of confidence,45 injurious falsehood,46 passing off,47 conspiracy,48 breach of contract,49 trespass to land,50 private nuisance,51 unlawful interference with contractual relations,52 copyright infringement,53 trade mark infringement,54 contempt of court,55 intimidation,56 and unconscionable conduct and promissory estoppel.57 Some deference may be shown to the cause of action selected by the plaintiff, but the plaintiff ’s choice is not determinative. The usual approach to determining whether the restrictive approach to injunctive relief in defamation applies, or whether an interlocutory injunction can be granted based on another cause of action, is usefully distilled by Lightman J in Service Corp International Plc v Channel Four Television Corp, where his Lordship stated that: The rule prohibiting the grant of an injunction where the claim is in defamation does not extend to claims based on other causes of action despite the fact that a claim in defamation might also have

42

Bonnard (n 38) 284–85 (Lord Coleridge CJ). 284 (Lord Coleridge CJ); Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 71–73 (Gleeson CJ and Crennan J) 86–88 (Gummow and Crennan JJ). 44 Rolph (n 41) 291. 45 Woodward v Hutchins [1977] 2 All ER 751, [1977] 1 WLR 760. 46 Swimsure (Laboratories) Pty Ltd v McDonald [1979] 2 NSWLR 796; Kaplan v Go Daddy Group [2005] NSWSC 636; Beechwood Homes (NSW) Pty Ltd v Camenzuli [2010] NSWSC 521. 47 Sim v H J Heinz Co Ltd [1959] 1 All ER 547, [1959] 1 WLR 313; Brabourne v Hough [1981] FSR 79. 48 Gulf Oil (Great Britain) Ltd v Page [1987] Ch 327. 49 Edelsten v Australian Broadcasting Corporation (1984) Aust Torts Reports ¶80-672. Cf Khalid v Channel Seven Sydney Pty Ltd [2014] NSWSC 9. 50 Brighten Pty Ltd v Nine Network Australia Pty Ltd [2009] NSWSC 319. 51 Animal Liberation (Vic) Inc v Gasser [1991] 1 VR 51. 52 Microdata Information Services Ltd v Rivendale Ltd [1991] FSR 681. 53 Western Front Ltd v Vestron Inc [1987] FSR 66; Service Corp International Plc v Channel Four Television Corp [1999] EMLR 83. 54 Bestobell Paints Ltd v Bigg [1975] FSR 421; Boehringer Ingelhein Ltd v Vetplus Ltd [2007] FSR 29. 55 Tate v Duncan-Strelec [2013] NSWSC 1446; Munsie v Dowling [2014] NSWSC 458. See also Y and Z v W (2007) 70 NSWLR 377, [2007] NSWCA 329. 56 Domino’s Pizza Enterprises Ltd v Stuart-Carberry (unreported, SC (NSW), 2016/00061753, 4 March 2016). 57 Kidu v Fifer [2016] NSWSC 488. 43 ibid

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been brought, but if the claim based on some other cause of action is in reality a claim brought to protect the plaintiff ’s reputation and the reliance on the other causes of action is merely a device to circumvent the rule, the overriding need to protect freedom of speech requires that the same rule be applied.58

This approach has been adopted in terms or endorsed in practice in many cases.59 The problem with it is that it provides no substantive method for determining whether the essence of a given case is the protection of reputation or some other interest. In part, the application of this test is dependent upon the state of the evidence before the court. In large measure, it is dependent upon the judge’s subjective perception of the case. A further difficulty with the application of the test is that it is binary. It does not allow for the possibility that the one set of circumstances could disclose more than one interest—the protection of reputation as well as another legally recognised interest. It may not be possible to distil the essence of a given case. There might legitimately be multiple interests at stake. The issue becomes acute when the alternative cause of action is privacy, because reputation and privacy can so readily be implicated in the same set of facts. The decision in Terry v Persons Unknown illustrates this.60 The then English national and Chelsea team captain, John Terry, initially known as ‘LNS’, sought an interim injunction to restrain the publication of private information about the fact of an extramarital relationship, as well as the details and consequences of it, and photographs documenting it.61 He framed his causes of action in breach of confidence and misuse of private information.62 However, as Tugendhat J observed, if the information were published, it was arguably defamatory.63 On his application for an interim injunction, Terry did not, and was not required to, state whether the information was true or false. The state of the evidence was crucial to the disposition of the application. First, it showed that Terry’s business partners were centrally involved in dealing with the matter, rather than his solicitors.64 This suggested that the economic consequences of any publication, particularly the loss of lucrative commercial sponsorships and endorsements, was foremost in Terry’s mind. Secondly, Terry did not give evidence, due to his professional commitments.65 Given that the pleaded causes of action protected a subjective, dignitary interest, the absence of any evidence as to Terry’s distress at the threatened publication was significant.66 Based on the evidence, Tugendhat J concluded that ‘the nub of LNS’ complaint in this case is the protection of reputation, and not of any other aspect of LNS’ private life’.67

58

Service Corp International Plc v Channel Four Television Corp [1999] EMLR 83, 89–90. See, eg, Fraser (n 38) 362 (Lord Denning MR); Woodward (n 45) 764 (Lord Denning MR); Swimsure (n 46) 800 (Hunt J); Church of Scientology of California Inc v Reader’s Digest Services Pty Ltd [1980] 1 NSWLR 344, 350–51 (Hunt J); Edelsten (n 49) [68,822] (Hunt J); Gulf Oil (n 48) 333–34 (Parker LJ); Microdata (n 52) 688 (Griffiths LJ); Greene (n 38) [78]–[81] (per curiam); McKennitt v Ash [2008] QB 73, [2008] EWCA Civ 1714, [79]–[80] (Buxton LJ). 60 Terry v Persons Unknown [2010] EWHC 119 (QB), [2010] EMLR 16. 61 ibid [6]. 62 ibid [48]. 63 ibid [9]. 64 ibid [27]–[34]. 65 ibid [36]. 66 ibid [66]. 67 ibid [95]. 59

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The decision reached by his Lordship on the facts before him may be the correct one. However, it is not difficult to envisage a slightly different scenario which would not be so straightforward. What if Terry had given evidence as to his distress at the impending revelation? Would that have transformed the characterisation of the case from being one principally concerned with privacy? Alternatively, could that support the characterisation of the case as being at once concerned with the protection of both reputation and privacy? If a matter cannot be legitimately characterised as being essentially concerned with reputation or privacy but equally implicates both, it is as yet unclear what is the proper approach to the grant of interlocutory relief in such circumstances. Given that reputation and privacy are both different aspects of an individual’s persona, it is to be expected that this difficult issue of principle will continue to arise. It needs careful consideration, particularly so as not lightly to subvert the well-established aversion defamation law has to prior restraint.

IV. Vindication of Reputation and Protection of Privacy Allied to the tension between injunctive relief for defamation and privacy is a distinction which has begun to be drawn between defamation and privacy in terms of the interests protected and the purposes served by the respective causes of action, and the consequent impact that a recognition of these differences has on the proper relief for each cause of action. Again, it has only been since the recognition, in some form, of a cause of action for invasion of privacy that this distinction has been articulated. The distinction is that reputation can be vindicated by an award of damages, whereas privacy, once invaded, can never be restored. It has been accepted by judges, academics and law reformers.68 It is doubtful whether it withstands close scrutiny. It may be readily accepted that privacy, once invaded, can never be restored. The nature of privacy as an intangible dignitary interest makes this so. More contestable is the assertion that an award of damages for defamation vindicates an individual’s reputation. Certainly, one of the most significant purposes of an award of damages in defamation is the vindication of the damaged r eputation.69 However, whether an award of damages is successful in securing that vindication is questionable. There is a well-developed scepticism amongst judges as to the efficacy of damages in

68 Mosley v NGN Ltd [2008] EMLR 20, 736, [2008] EWHC 1777 (QB) [230] (Eady J); Cooper v Turrell [2011] EWHC 3269 (QB) [102] (Tugendhat J); New South Wales Law Reform Commission, Invasion of Privacy, Report No 120 (2009) [7.16]–[7.18]; G Phillipson, ‘Max Mosley Goes to Strasbourg: Article 8, Claimant Notification and Interim Injunctions’ (2009) 1 Journal of Media Law 73, 74–75; House of Lords and House of Commons, Joint Committee on Privacy and Injunctions, Privacy and Injunctions (HL Paper 273/HC 1443, March 2012) [51]; Right Honourable Lord Justice Leveson, An Inquiry into the Culture, Practice and Ethics of the Press (November 2012) Vol IV [3.12]. 69 See, eg, Dingle v Associated Newspapers Ltd [1964] AC 371, 396 (Lord Radcliffe); Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118, 150 (Windeyer J); Jameel v Wall Street Journal Europe SprL [2007] 1 AC 359, 375 (Lord Bingham of Cornhill).

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v indicating a defamed individual’s reputation.70 It is often conceded that an award of damages is an imperfect means of vindicating reputation, but it is the only one currently available in most common law jurisdictions, in the absence of any more effective, alternative remedies, such as apologies, retractions or rights of reply.71 Judges increasingly acknowledge that suing for defamation, which is intended to vindicate a reputation, is paradoxically likely to harm the damaged reputation further by giving publicity to the defamatory matter.72 The vindicatory effect of an award of damages for defamation, then, should not be overstated. This distinction between reputation and privacy has emerged in order to provide a principled basis for continuing to adopt a restrictive approach to injunctive relief in defamation, but to grant such relief more readily for claims in privacy. It is flawed not merely because it overstates the vindicatory effect of defamation damages, but because it proceeds on the basis that a given case will implicate either reputation or privacy, but not both. It is entirely possible for reputation and privacy to be engaged in the one case. The more fundamental flaw, however, is that the distinction refuses to engage with a consequence of recognising a cause of action for invasion of privacy, namely that the restrictive approach to injunctive relief for defamation may need to be rethought.73 It purports to be principled but is, in fact, pragmatic. The approach to interlocutory injunctions in defamation cases developed at a time when there was no direct, comprehensive protection of privacy. Given that reputation and privacy may be implicated in the same case, it may not be possible to demarcate between them, in principle or in practice. It is not a satisfactory answer to attempt to ascertain the essence of a given case: whether it is the protection of reputation or privacy. Just as privacy cannot be un-invaded, a defamatory matter cannot be un-published. Rather than emphasising the differences between reputation and privacy, perhaps it is appropriate, instead, to emphasise their similarities; that both are intangible, dignitary or personality interests. Again, this is another difficult issue of principle raised by the interaction of defamation and privacy, which requires careful consideration.

V. False Privacy Yet another conceptually difficult issue raised as a consequence of recognising a cause of action for invasion of privacy is the notion of ‘false privacy’. The tort of defamation operates

70 See, eg, Reynolds v Times Newspapers Ltd [2001] AC 127, 201 (Lord Nicholls of Birkenhead); Ballina Shire Council v Ringland (1994) 33 NSWLR 680, 699 (Kirby P); Lenah Game Meats (n 18) 301–02 (Callinan J); [2001] HCA 63; Cerutti v Crestside Pty Ltd [2014] QCA 33 [35]–[36] (Applegarth J). See also J Fleming, ‘Retraction and Reply: Alternative Remedies for Defamation’ (1978) 12 University of British Columbia Law Review 15, 15. 71 Plato Films (n 6) 1125 (Viscount Simonds); Broome v Cassell & Co Ltd [1972] AC 1027, 1071 (Lord Hailsham of St Marylebone LC). 72 See, eg, Cerutti (n 70) [35] (Applegarth J); Kenny v Australian Broadcasting Corporation [2014] NSWSC 190 [4] (Beech-Jones J). 73 See, eg, H Fenwick and G Phillipson, Media Freedom Under the Human Rights Act (Oxford, Oxford University Press, 2006) 1100; R Clayton and H Tomlinson, The Law of Human Rights, 2nd edn (Oxford, Oxford University Press, 2009) [15.26]–[15.28]; G Busuttil and P McCafferty, ‘Interim Injunctions and the Overlap between Privacy and Libel’ (2010) 2 Journal of Media Law 1, 8–13.

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on a dichotomy of truth and falsity. To defame a person is to publish matter which is false and disparaging of his or her reputation. The matter is presumed to be false.74 A publisher can establish a complete defence by proving, on the balance of probabilities, that the matter was substantially true.75 A publisher does no wrong to an individual’s reputation by telling the truth about him or her.76 Yet a publisher may invade an individual’s privacy by publishing the truth about him or her. This can be equally, if not more, intrusive upon an individual’s dignity than publishing false and disparaging matter about him or her. The concept of false privacy involves recognition that information that is private may merit legal protection even where the information is false. Again, when reputation was protected but privacy was not, this was not a problem. The current position for the protection of privacy under English law derives from the existing equitable cause of action for breach of confidence. The indications are that Australian law, if it develops a more direct form of privacy protection, will do so by extending and adapting breach of confidence. Prior to the introduction of the Human Rights Act 1998 (UK), there was no real suggestion that false information could be confidential. Indeed, there were dicta suggesting the opposite.77 It has only been after the introduction of the Human Rights Act that there has been acceptance, largely uncritical, by judges and academics of the concept of ‘false privacy’.78 There are now cases in which relief has been granted in both defamation and privacy.79 Whether Australian law will recognise the concept of ‘false privacy’ is questionable. There are recent dicta rejecting the notion that there can be confidentiality in false information.80 It is true that, under United States privacy law, there is recognised a tort of placing the plaintiff in a false light.81 This provides protection against the publication of a false and misleading, but non-derogatory statement. Not every false statement is defamatory. In the absence of disparagement of reputation, a false statement is ordinarily not defamatory.82 The tort of placing the plaintiff in a false light then has the potential to overlap or conflict with defamation. There has, as yet, though, been no real suggestion, in the United Kingdom, New Zealand, Canada or Australia, of adopting this particular tort from United States privacy law. Given the breadth of the protection of defamation law against false and disparaging statements provided in these jurisdictions, there is a real question as to whether a tort of placing the plaintiff in a false light would have any work to do.83 74 A v Ipec Australia Ltd [1973] VR 39, 47–48 (Menhennitt J); Singleton v French (1986) 5 NSWLR 425, 442 (McHugh JA); Age Co Ltd v Elliott (2006) 14 VR 375, 378 (Buchanan JA); [2006] VSCA 168. 75 Sutherland v Stopes [1925] AC 47, 62 (Viscount Finlay). 76 Rofe v Smith’s Newspapers Ltd (1924) 25 SR (NSW) 4, 21–22 (Street ACJ). 77 See, eg, Khashoggi v Smith (1980) 12 SJ 149; Interbrew v Financial Times Ltd [2002] EWCA Civ 274 [27] (Sedley LJ); [2002] EMLR 24, 462. 78 See, eg, Cornelius v Taranto [2002] EMLR 6, [2001] EWCA Civ 1511; R Toulson and C Phipps, Confidentiality, 3rd edn (London, Sweet & Maxwell, 2006) [3-093]–[3-095]. 79 See, eg, Applause Store Productions Ltd v Raphael [2008] EWHC 1781 (QB). 80 See, eg, Brand v Monks [2009] NSWSC 1454 [154]–[155], [159] (Ward J); Palace Films Pty Ltd v Fairfax Media Publications Pty Ltd [2010] NSWSC 415 [72]–[74] (McCallum J); AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd [2010] NSWSC 1395 [24] (Brereton J). 81 American Law Institute, Restatement of Torts (n 10) §652E. 82 Boyd v Mirror Newspapers [1980] 2 NSWLR 449, 454 (Hunt J); Radio 2UE Sydney Pty Ltd v Chesterton (2009) 238 CLR 460, 469 (French CJ, Gummow, Heydon, Kiefel, Bell JJ), [2009] HCA 16 [12]. 83 D Butler, ‘A Tort of Invasion of Privacy in Australia?’ (2005) 29 Melbourne University Law Review 339, 368.

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The concept of ‘false privacy’ then raises difficult issues of principle. To assert that defamation operates on a dichotomy of truth and falsity, whereas privacy turns upon whether the matter is private or not, with these two axes operating entirely separately,84 neglects to consider whether and, if so, how, they might intersect or conflict. Recognising a cause of action in privacy, which can apply to matter irrespective of whether it is true or false clearly has the potential to subvert defamation law, which, for a long time, has regulated the publication of false matter. To accept that privacy encompasses ‘false privacy’ uncritically, without adverting to the impact on defamation law, also challenges the way in which the legal regulation of personality or dignitary interests has developed historically. If there could be confidence in false information, then presumably a publisher’s conscience could be bound not to spread lies about an individual. If this were the case, the whole history of defamation law would have been profoundly different; defamation would have been an equitable cause of action, not a common law wrong. The concept of ‘false privacy’ then requires attention to be given to how the current legal regulation of personality or dignitary interests can proceed in such a way so as to promote the orderly and coherent development of the common law.

VI. Qualified Privilege and Fair Comment The recognition of a cause of action in privacy may cause other problems for defamation law. For instance, an important defence for publishers is the defence of qualified privilege. As it has developed in the United Kingdom and Canada within the last two decades,85 the defence of qualified privilege has evolved to protect publishers from liability for defamatory matter, where the publication concerned a matter of public interest and where the publisher had believed, reasonably or responsibly, in the circumstances of publication. The statutory defence of qualified privilege, adopted in Australia under the national, uniform defamation laws, also focuses on the reasonableness of the publisher’s conduct.86 A key issue in determining whether the publisher acted reasonably or responsibly is whether the publisher made a reasonable attempt to obtain and publish a response from the defamed individual.87 Getting both sides of the story is viewed as crucial to responsible journalism. Yet, by seeking to manage the risk of defamation and to establish the basis for a defence of qualified privilege, a publisher, by contacting the individual who is the subject of an impending publication, puts that individual on notice of the publication. That individual may then seek an injunction on the basis of privacy, in circumstances where ordinarily none

84

See, eg, McKennitt (n 59) [78]–[80] (Buxton LJ), [86] (Longmore J). to the United Kingdom, see Reynolds (n 70). As to Canada, see Grant v Torstar (2009) SCC 61[2009] 3 SCR 640. In England and Wales, the Reynolds defence has now been abolished (Defamation Act 2013, s 4(6)) and replaced by a defence of publication of a matter of public interest (Defamation Act 2013, s 4(1)). 86 See Civil Law (Wrongs) Act 2002 (ACT), s 139A(1)(b), 139A(3); Defamation Act 2006 (NT), s 27(1)(b), 27(3); Defamation Act 2005 (NSW), s 30(1)(b), 30(3); Defamation Act 2005 (Qld), s 30(1)(b), 30(3); Defamation Act 2005 (SA), s 28(1)(b), 28(3); Defamation Act 2005 (Tas), s 30(1)(b), 30(3); Defamation Act 2005 (Vic), s 30(1)(b), 30(3); Defamation Act 2005 (WA), s 30(1)(b), 30(3). 87 See Reynolds (n 70) 205 (Lord Nicholls of Birkenhead). See also Civil Law (Wrongs) Act 2002 (ACT), s 139A(3)(h); Defamation Act 2006 (NT), s 27(3)(h); Defamation Act 2005 (NSW), s 30(3)(h); Defamation 85 As

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would be available in defamation. In certain jurisdictions, at an interlocutory stage, considerations of public interest must be given weight,88 although, given the urgent nature of interlocutory applications, the evidence marshalled and the arguments based upon it may be imperfect. In Australia, where the adaptation of breach of confidence is the most likely means of developing direct privacy protection, there is presently no public interest defence to this cause of action.89 In practical terms then, a publisher may face an invidious choice: either comply with its responsibilities as a publisher (and manage the risk of defamation) by seeking a comment from the individual, thereby alerting him or her to the impending publication and providing him or her with an opportunity to obtain an injunction and suppress the publication; or proceeding with the publication without seeking a comment from the individual, running the risk of defamation without an important defence being available in the event of litigation. Either way, the publisher bears the risk. This situation then has the potential to undermine freedom of speech, which is one of the central interests protected by defamation law. Another aspect of defences to defamation, which the introduction of a right to privacy renders problematic, is the defence of fair comment. At common law, the defence of fair comment required the comment to be based on a matter of public interest.90 The rationale for this element of the defence was that an individual should be able to exercise his or her freedom of speech publicly to comment on a matter of public interest.91 In particular, the public lives or conduct of public figures could be the legitimate subject of public comment.92 Implicitly then, an individual’s right to comment publicly did not extend to matters of purely private interest. The element of public interest remains a part of the defence of honest opinion in Australia93 but English defamation law no longer demands it. The statutory defence of honest opinion,94 which abolishes the common law defence,95 does not require the defendant to prove that the matter relates to a matter of public interest. So long as the matter on which the opinion is based is true or otherwise privileged,96 it can

Act 2005 (Qld), s 30(3)(h); Defamation Act 2005 (SA), s 28(3)(h); Defamation Act 2005 (Tas), s 30(3)(h); Defamation Act 2005 (Vic), s 30(3)(h); Defamation Act 2005 (WA), s 30(3)(h). 88 Human Rights Act 1998 (UK), s 12(4)(a); Cream Holdings v Banerjee [2005] 1 AC 253, 262–63 (Lord Nicholls of Birkenhead); [2004] UKHL 44 [24]–[25]. 89 Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434, 451–56 (Gummow J); Smith Kline & French Laboratories (Aus) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73, 111 (Gummow J); Sullivan v Sclanders (2000) 77 SASR 419, 425–27 (Gray J); Australian Football League v Age Co Ltd (2006) 15 VR 419, 438 (Kellam J). 90 South Hetton Coal Co Ltd v North-Eastern News Association Ltd [1894] 1 QB 133, 140 (Lord Esher MR); Cheng v Tse Wai Chun (2000) 3 HKLRD 418, 424 (Lord Nicholls of Birkenhead NPJ). 91 See, eg, Pryke v Advertiser Newspapers Ltd (1984) 37 SASR 175, 191 (King CJ); John Fairfax Publications Pty Ltd v O’Shane (2005) Aust Torts Reports ¶81-879 [67,453] (Giles JA); [2005] NSWCA 164. 92 Whiteley v Adams (1863) 15 CB (NS) 415; (1863) 143 ER 838, 848 (Erle CJ); Broadbent v Small (1876) 2 VLR (L) 121, 124 (Stawell CJ); Williams v Spowers (1882) 8 VLR (L) 82, 101–02 (Stawell CJ); Digby v Financial News Ltd [1907] 1 KB 502, 508 (Collins MR); Whitford v Clarke [1939] SASR 434, 439 (Napier J); Bellino v Australian Broadcasting Corporation (1996) 185 CLR 183, 215 (Dawson, McHugh and Gummow JJ). 93 See, eg, Civil Law (Wrongs) Act 2002 (ACT), s 139B(1)(b), (2)(b), (3)(b); Defamation Act 2006 (NT), s 28(1)(b), (2)(b), (3)(b); Defamation Act 2005 (NSW), s 31(1)(b), (2)(b), (3)(b); Defamation Act 2005 (Qld), s 31(1)(b), (2)(b), (3)(b); Defamation Act 2005 (SA), s 29(1)(b), (2)(b), (3)(b); Defamation Act 2005 (Tas), s 31(1)(b), (2)(b), (3)(b); Defamation Act 2005 (Vic), s 31(1)(b),(2)(b), (3)(b); Defamation Act 2005 (WA), s 31(1)(b), (2)(b), (3)(b). 94 Defamation Act 2013 (UK), s 3. 95 ibid s 3(4). 96 ibid s 3(8).

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be a protected exercise of honest opinion. Although broadly interpreted in practice, consistently with this defence’s protection of the exercise of freedom of speech, the requirement of public interest as an element of the defence of fair comment was an indirect means of protecting privacy. Dispensing with it in defamation, when the law is otherwise becoming more protective of privacy, is another example of reforming defamation law without reference to privacy. These two examples of practical and principled problems with defamation defences by the introduction of a cause of action for invasion of privacy are not the only potential ones that may arise. They indicate, though, that a more systematic analysis of the interaction between defamation and privacy may be required.

VII. Conclusion Judges are aware that the interaction between defamation and privacy raises difficult doctrinal problems.97 Often the way in which these problems present themselves does not permit the detailed and considered thinking that their principled resolution necessitates. For example, the urgency of an application for an interlocutory injunction makes it an inappropriate occasion for such reflection.98 However, not all aspects of privacy law, as it is developing, will present significant problems to defamation law. Liability for intrusion upon seclusion,99 for instance, which is an extension of the law to fill the gap left by trespass to land, raises few difficulties for defamation law. However, given the importance of information- or publication-based causes of action in the developing law of privacy—whether it is a ‘tort’ of misuse of private information, a tort of public disclosure of private facts or the traditional equitable cause of action for breach of confidence—problems in the relationship between defamation and privacy will continue to arise. Their principled resolution will be difficult, but will also be important. The interaction between defamation and privacy promises then to be a fruitful new line of inquiry, warranting much more detailed academic analysis.

97 Browne v Associated Newspapers Ltd [2007] EWHC 202 (QB) [28]–[30]; [2007] EMLR 19, 527–28 (Eady J); RST v UVW [2009] EWHC 2448 (QB) [33]; [2010] EMLR 13, 362 (Tugendhat J). 98 RST (n 97) [33], 362 (Tugendhat J). 99 See, eg, C (n 12); Jones (n 16). See generally N Moreham, ‘Beyond Information: Physical Privacy in English Law’ (2014) 73 CLJ 350.

23 Making Amends by Apologising for Defamatory Publications: Developments in the Twenty-First Century ROBYN CARROLL AND JEFFREY BERRYMAN*

I. Introduction The theme of this collection invites us to identify and discuss challenges that private law is likely to face, nationally and internationally, in the twenty-first century. Much has been written in recent decades about the benefits to parties and the justice system of resolving their legal disputes through non-court processes and on broader terms of redress than could be obtained from a court. One broad challenge for private law is how to support procedures and remedies by which a plaintiff ’s rights are vindicated, and at the same time encourage parties to settle their disputes without recourse to litigation.1 This chapter discusses this challenge within defamation law, an area of private law that has grappled for centuries with the need to balance the private right of reputation of the defamed party with the public interest in freedom of expression through publication. Our inquiry, at a broad level, concerns how the law might achieve its aim of encouraging speedy and non-litigious resolution of defamation disputes, while ensuring effective and fair remedies for a person the subject of a defamatory publication. Efforts have been made in defamation law and procedure over the years to encourage the early resolution of defamation claims that achieve the remedial goals of defamation law without the lengthy delays associated with a trial to obtain an award of damages. The offer to make amends is one statutory mechanism aimed at encouraging parties to settle a defamation dispute quickly, without litigation and on terms not limited to damages. While the offer to make amends mechanism is part of a broad modern trend to encourage settlement and nonlitigious dispute resolution processes, it is only one part of the complex mix of defamation law concerning liability, defences, damages, other forms of relief, costs rules and court procedures. * We gratefully acknowledge the research assistance of Catherine Graville and Harrison Nemirov in the preparation of this chapter. 1 We refer throughout this chapter to the parties to a defamation dispute as ‘plaintiff ’ and ‘defendant’, recognising that in many instances the parties to a dispute will not be parties to litigation and that the description of parties varies between jurisdictions.

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This chapter inquires more specifically into the role that the law ascribes to apologies in the resolution of defamation disputes and the role of offers to make amends as a means of achieving this remedy. We refer to the law in Australia and Canada to identify various legislative provisions by which the law encourages apologies as an early and vindicatory response to a defamatory publication. Our aim is to assess how well the law balances the aims of these provisions, in particular in the offer to make amends, with the encouragement of apologies as a remedy for defamation. In section II we provide an overview to the goals of defamation law and the scope for parties to a defamation dispute to achieve apologies and other non-pecuniary remedies in common law jurisdictions. In section III we identify the role that the law ascribes to apologies in Australia and Canada. In section IV we examine ways that the law encourages offers of apologies through statutory defences. We outline the Australian offer to make amends provisions and comment on what is required by way of corrections and apologies. In s ection V, we identify two concerns associated with the offer to make amends defence with particular attention to the Australian provisions, drawing comparisons where relevant with the offer to make amends provisions in the United Kingdom. In the final section, we offer our conclusions about these provisions.

II. Remedial Outcomes for Defamation: Alternatives to Damages2 Defamation law aims to protect a person’s reputation. In doing so the law aims to strike a balance between the right to reputation, the right to freedom of expression and protecting the public interest in a democratic society in a free press.3 In common law jurisdictions damages are the primary remedy for defamation.4 The purposes for which damages are awarded are threefold: (1) consolation for personal distress and hurt caused to the plaintiff; (2) reparation for the harm done to the plaintiff ’s personal reputation and, if relevant, business reputation; and (3) vindication of the plaintiff ’s reputation.5 Research shows that people who have been defamed want a prompt response that both vindicates and restores their reputation.6 There is evidence to suggest that many defamation plaintiffs do not seek to recover damages for financial harm; their motivation is to restore 2 See generally, D Milo, Defamation and Freedom of Speech (Oxford, Oxford University Press, 2008) ch VIII; G Patrick, Defamation Law in Australia, 2nd edn (Chatswood, LexisNexis Butterworths, 2012); D Rolph, Defamation Law (Pyrmont, Lawbook Co, 2016) ch 17. 3 D Rendleman, Complex Litigation: Injunctions, Structural Remedies and Contempt (New York, Foundation Press, 2010) 736. 4 As a study of the defamation law in the United States, England and Australia demonstrates, there are important differences between each of the laws in these three common law jurisdictions, each of which has developed their approach to modern defamation law from the traditional common law approach. See R Weaver, A Kenyon, D Partlett and C Walker, The Right to Speak Ill (Durham NC, Carolina Academic Press, 2006). 5 Carson v John Fairfax & Sons Ltd (1993) 178 CLR 44, 60–61 (Mason CJ, Deane, Dawson and Gaudron J), cited with approval in Cleese v Clark [2003] EWHC 137 (QB) [37] (Eady J). 6 F Schauer, ‘Social Foundations of the Law of Defamation: A Comparative Analysis’ (1981) 1 Journal of Media Law and Practice 1; R Bezanson, G Cranberg and J Soloski, ‘Libel Law and the Press: Setting the Record Straight’ (1985) 71 Iowa Law Review 215, 220.

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their reputation and have the record set straight.7 There is no right of reply in common law jurisdictions.8 Common law courts are reluctant to order corrections, retractions and apologies, principally because of the implications for free speech, the drastic nature of contempt-backed proceedings and the supervisory burden on courts that may result.9 Although these are generally unavailable as court-ordered remedies, these alternative remedies play an important role in settlements out of court. The terms ‘correction’, ‘retraction’ and ‘apology’ often are used interchangeably and without consistent meaning. The meaning of these words is important to the argument we advance in this chapter, and for that reason we define them as follows: ‘correction’ means a correction of an incorrect fact without a retraction of the falsity or acknowledgment of wrongdoing, or any act of contrition or expression of apology; ‘retraction’ means the retraction of a false and defamatory statement; and ‘apology’ means an acknowledgment of wrongdoing and some act of contrition or expression of regret, remorse or sorrow. This definition of an apology does not necessarily reflect the meaning that will be attributed by the parties to an apology that is offered in a legal context. While an expression of regret or remorse may be regarded as an apology for some purposes and acceptable to the recipient of the apology, it is generally considered that a ‘full’ apology will incorporate an admission of fault or wrongdoing.10 In defamation, even though the terms are sometimes used interchangeably, an apology needs to offer more than a correction. The common law’s preference for damages does little to redress a victim’s need for their reputation to be restored quickly, more directly and by correcting the public record. The unfortunate result is that alternative remedies, which potentially could restore reputation quickly and more directly, are under-utilised.11 This is not to say, however, that the common law does not recognise the important role that corrections, retractions and apologies can play in mitigating damage caused by a defamatory publication and restoring reputation. There are a number of ways that the law encourages these remedial responses by defendants, as seen in sections III and IV. The effectiveness of offers to make amends has to be considered against the backdrop of the role that corrections, retractions and apologies play in assessment of damages for defamation, the remedies that would be made available to the parties by a court and other procedures for disposing of defamation claims. As the law casts the ‘shadow’12 within which the parties engage in ‘litigotiation’,13 it is useful to distinguish 7 R Benzanson, ‘The Libel Suit in Retrospect: What Plaintiffs Want and What Plaintiffs Get’ (1986) 74 California Law Review 789, 791. 8 This is in contrast with civil law systems where it is a common method of dealing with the publication of defamatory facts and opinions by the media. See Milo (n 2) 267, who cites M McMahon, ‘Defamation Claims in Europe: A Survey of the Legal Armory’ (2002) 19 Communications Lawyer 24. 9 Australian Law Reform Commission, Unfair Publication: Defamation and Privacy (Report No 11, 1979) 140 [258]. See also J Fleming, ‘Retraction and Reply: Alternative Remedies for Defamation’ (1978) 12 University of British Columbia Law Review 15; R Carroll, ‘Beyond Compensation: Apology as a Private Law Remedy’ in J Berryman and R Bigwood (eds), The Law of Remedies: New Directions in the Common Law (Toronto, Irwin Law, 2010) 323, 369–76. 10 A Allan, ‘Apologies in Civil Law: A Psycho-Legal Perspective’ (2007) 14 Psychiatry, Psychology and Law 5, 7. 11 R Carroll and N Witzleb, ‘It’s Not Just About The Money—Enhancing the Vindicatory Effect of Private Law Remedies’ (2011) 37 Monash University Law Review 216, 226; R Jukier, ‘Nonpecuniary Damages in Defamation Cases’ (1989) 49 Revue du Barreau 3 (focusing on Quebec law). 12 RH Mnookin and L Kornhauser, ‘Bargaining in the Shadow of the Law: The Case of Divorce’ (1979) 88 Yale Law Journal 950; M Galanter, ‘Justice in Many Rooms: Courts, Private Ordering and Indigenous Law’ (1981) 19 Journal of Legal Pluralism 1. 13 M Galanter, ‘World of Deals: Using Negotiation to Teach about Legal Process’ (1984) 34 Journal of Legal Education 268.

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between remedial actions that can be taken by parties without a court order, and remedies only available as a court order. The availability of coercive orders and other incentives to settle out of court will be highly significant to the parties’ negotiations. In defamation cases in particular, it is also important for parties to consider processes that involve the court other than for determinations of liability and remedial orders. These are mentioned briefly here before turning to look in greater detail at statutory rules and defences that are of particular relevance to apologies.

A. Remedial Action for Defamation that can be Achieved without a Court Order Parties are free to agree to actions on terms that go beyond what would be available following court proceedings. They can agree that a plaintiff be afforded an opportunity to reply to a defamatory publication and the method by which the reply is published. A defendant can act unilaterally or agree to withdraw the offending publication from print circulation or online availability. The defendant can agree to make a payment by way of compensation and to meet costs incurred by the plaintiff in relation to the matter and to publish a retraction, correction or an apology. Without the pressure of litigation, however, a publisher may choose not to offer or publish these remedial actions, mindful of the defences that may be available and the reality that they will not be ordered to do so.

B. Court Ordered Apologies and Other Alternative Remedies Retraction, correction and apology orders are rarely ordered by courts in common law jurisdictions. These orders are not made in Australia14 or in the UK other than under summary proceedings.15 There is no provision for apology or correction orders for defamation in New Zealand, although the Defamation Act 1992 provides for a party who claims to have been defamed in a news medium to seek a retraction or a reasonable reply.16 In South Africa, retractions and apologies are available as a form of amende honorable, although these orders are rare.17 In Canada, while the general rule is that a court will not order a defendant to publish a retraction or publish an apology,18 some courts have endorsed such an order.19 14 See Summertime Holdings Pty Ltd v Environmental Defender’s Office Ltd (1998) 45 NSWLR 291; Pingel v Toowoomba Newspapers Pty Ltd [2010] QCA 175 [137] (Applegarth J). 15 Defamation Act 1996 (UK), s 8. 16 Defamation Act 1992 (NZ), s 25. 17 In University of Pretoria v South Africans for the Abolition of Vivisection 2007 (3) SA 395 (O) [17] the Court made a declaration of falsity and directed that the defendant publish an unqualified public statement retracting and apologising for the publication. For discussion and critique of the amende honorable in South Africa, see J Burchell, ‘Retraction, Apology and Reply as Responses to injuriae’ in E Descheemaeker and H Scott (eds), Iniuria and the Common Law (Oxford, Hart Publishing, 2013) ch 10; D Milo, ‘Developments in South African Defamation Law: Reasonable Publication, Public Interest and Alternative Remedies’ (2009) 14 Media and Arts Law Review 117; E Descheemaeker, ‘Old and New Learning in the Law of Amende Honorable’ (2015) 132 South African Law Journal 909. 18 Hunger Project v Council on Mind Abuse (COMA) Inc (1995) 22 OR (3d) 29 (Gen Div). See also obiter dicta in John v Lee (2009) BCCA 313 [11]. 19 In one case the defendants, parents of a child who suffered with Down Syndrome and who were fighting to maintain the child’s placement in a French immersion school, and who had made defamatory remarks on a

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Injunctions and declarations are forms of relief that can only be achieved by court order, and therefore litigation is unavoidable. Interim pre-publication injunctions are not commonly made in common law or civil jurisdictions, and permanent pre-publication injunctions are rarely, if ever, granted. While the availability of post-publication injunctions is greater and less problematic from a freedom of expression perspective, and can address repetition of a defamatory publication, it does little to address past reputational harm. Declarations are not uncommon in civil jurisdictions and some common law jurisdictions make specific provision for declaratory orders of falsity or liability for defamation.20 In the United States, England and Australia, the declaration of falsity is not an order that a court can make, notwithstanding that recommendations have been made for its adoption in each of these jurisdictions.21

C. Other Court Orders and Procedures Case management and court-based mediation and other settlement-focused processes reduce the number of matters decided by trial. A notable procedural mechanism is to attach costs consequences to failure by a plaintiff to accept the terms of a settlement offer more favourable than final judgment. Vindicatory mechanisms include providing that a court giving judgment in favour of the plaintiff may order the defendant to publish a summary of a judgment,22 and allowing parties to make statements in open court. Parties who enter into an offer of settlement in relation to a defamation claim are entitled to apply to make a vindicatory statement in open court, which must be submitted in advance for the approval of the court.23 Another approach is found in New Zealand where a court, upon application by the plaintiff, can recommend that the defendant publish or cause to be published a correction of the matter that is the subject of the proceedings.24 Summary relief procedures are another way that parties to a defamation action can obtain relief, including an apology for a defamatory publication, from a court without a trial.25 The remedies available in this way to a plaintiff in the UK are a declaration that the statement published was false and defamatory of them, an order that the defendant publish or cause to be published a sufficient correction and apology, damages not exceeding £10,000, and an order restraining the defendants from publishing or further publishing the

website about a school principal and a superintendent of instruction, were required to publish a retraction and apology in two local newspapers, Ottawa-Carlton District School Board v Scharf [2007] OJ No 3030, affirmed 2008 ONCA 154, leave to appeal refused [2008] SCCA No 285. See also Moore v Canadian Newspapers Co (1989) 69 OR (2d) 262 (HC) expressing the opinion that the court did have the power to order an apology and that such an act would not violate the Canadian Charter. 20

See, for example, Defamation Act 1992 (NZ), s 24. Rolph (n 2) para 17.100. 22 Defamation Act 2013 (UK), s 12. 23 CPR PD 53 (Defamation claims) 6.1–6.4. In Australia, see, for example, Uniform Civil Procedure Rules 2005 (NSW), r 29.15. In New Zealand, see Defamation Act 1992 (NZ), s 34. 24 Defamation Act 1992 (NZ), s 26. Section 27 allows the court to include recommendations relating to the content, timing and prominence of the correction. Failure of the defendant to publish as recommended will be taken into account in the assessment of damages and costs. 25 Defamation Act 1996 (UK), s 8. 21

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allegations.26 The content of any correction and apology, and how it should be published is for the parties to agree but, in the event that they are unable to agree on these matters, the court can make an order for the publication of an approved summary of the court’s judgment.27 There is also provision for a court to summarily dismiss a claim on application by a defendant on the ground that it appears to have no realistic prospect of success.28 No similar procedures to settle minor defamation claims have been developed in Australia,29 and as the lower courts do not have jurisdiction in defamation matters, even minor claims must be litigated in the higher courts resulting in higher legal costs.30 This section has highlighted the importance of out-of-court settlement for parties who want to resolve a defamation claim promptly and in a way that vindicates the plaintiff and restores their reputation. A litigated outcome has a number of shortcomings for all but a few plaintiffs: the length of time that the defamatory publication continues to work its harm, the uncertainty of the result and the reality that even in the event of success and an award of damages, no apology will be forthcoming unless offered voluntarily by the defendant. With these realities in mind, it is unsurprising that both the law and defamation lawyers have given much attention to encouraging prompt agreement on terms of settlement that include apologies and other alternative remedies to damages. The following sections examine the ways that the law encourages apologies and the early settlement of defamation disputes in Canada and Australia.

III. Legal Principles that Encourage Apologies in Response to a Defamatory Publication There is much similarity in the role that apologies play in defamation law in Australia31 and Canada32 and other common law countries. They are relevant to the assessment of damages and in determining costs where an out of court settlement was not accepted. It is impossible to identify uniform treatment across all the Canadian provinces, because the legislative regimes differ.33 In Australia the law is the same in all states and territories since the

26

ibid s 9. ibid s 9(2). 28 ibid ss 8(2)–(3). 29 This is notwithstanding a proposal to this effect by the Attorney-General’s Department in the lead up to the enactment of uniform defamation laws in Australia, Australian Government, Attorney-General’s Department, Revised Outline of a Possible National Defamation Law, July 2004, 30. 30 B Styles, ‘The Power of a Timely Apology’ (2013) 24 Law Society Journal 24. 31 See generally Rolph (n 2) [17.110]–[17.120]. 32 See generally Brown on Defamation, vol 7, paras 7 25.4(2), 25.5(1). 33 We do not deal with Quebec civil law. In Quebec, defamation comes within art 1457 of the Civil Code of Québec, CQLR, c C-1991, which states: ‘Every person has a duty to abide by the rules of conduct incumbent on him, according to circumstances, usage or law, so as not to cause injury to another’. A claimant is required to establish the existence of injury, a wrongful act and a causal connection between the two. The wrongful act requires fault. Defamation will be demonstrated where ‘an ordinary person would believe that the remarks made, when viewed as a whole, brought discredit on the reputation of the another person’. See Gilles E Néron Communication Marketing Inc v Chambre des notaires du Québec [2004] 3 SCR 95 [57]. 27

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enactment of uniform defamation laws in 2005–06.34 These laws abolished the distinction between libel and slander.35 The Defamation laws do not codify the law of defamation and therefore the general law applies unless the Acts provide otherwise. In this section, we refer to two ways that the law encourages apologies to remedy a defamatory publication, namely mitigation of damages and statutory protection of apologies.

A. Mitigation of Damages Steps taken to mitigate the damage caused by a defamatory publication are not only important to achieving resolution or legal settlement of an allegation of defamation, they can also impact on the type and quantum of damages that might eventually be awarded. The common law has long recognised the significance of an apology, or the lack thereof, as a mitigating36 or aggravating37 factor in assessing damages for defamation.

(i) Australia In Australia, section 38 of the Defamation Act 2005 (NSW) confirms the significance attached by the law to both apologies and corrections to mitigate damages. The section provides, as is relevant: (1) Evidence is admissible on behalf of the defendant, in mitigation of damages for the publication of defamatory matter, that— (a) the defendant has made an apology to the plaintiff about the publication of the defamatory matter; (b) the defendant has published a correction of the defamatory matter; (2) Nothing in subsection (1) operates to limit the matters that can be taken into account by a court in mitigation of damages.

To be significant as a mitigating factor, the apology must be an expression of regret for the plaintiff ’s hurt and embarrassment38 and must accept responsibility for the inaccuracy.39 Section 38 contemplates that these mitigating actions actually have been taken, not merely offered. The circumstances of the apology will be significant to whether there has been an apology at all and whether it has mitigated loss. An apology that does not withdraw

34 The commencement date for the states’ legislation was 1 January 2006: Defamation Act 2005 (NSW), s 2; Defamation Act 2005 (Qld), s 2; Defamation Act 2005 (SA), s 2; Defamation Act 2005 (Tas), s 2 (on a date to be proclaimed, ultimately being 1 January 2006); Defamation Act 2005 (Vic), s 2; Defamation Act 2005 (WA), s 2. The Civil Law (Wrongs) Act (ACT), ch 9 commenced on 22 February 2006 and the Defamation Act 2006 (NT) commenced on 26 April 2006. See D Rolph, ‘A Critique of the National Uniform Defamation Laws’ (2008) 16 Torts Law Journal 207. For convenience, in this chapter we refer to the provisions of the Defamation Act 2005 (NSW). 35 Defamation Act 2005 (NSW), s 7. 36 Broome v Cassell & Co Ltd [1972] AC 1027, 1071. As Tilbury notes, ‘mitigation is used “in a peculiar sense” in defamation, false imprisonment and malicious prosecution actions to show ‘that the plaintiff ’s loss is less than, at first blush, it appears to be’. M Tilbury, Civil Remedies, vol II (Sydney, Butterworths, 1993) para 11027. 37 Rookes v Barnard [1964] AC 1129; Carson v John Fairfax and Sons Ltd (n 5). 38 Uren v John Fairfax & Sons Pty Ltd [1966] 117 CLR 118, 141 (Menzies J). 39 Pedavoli v Fairfax Media Publications Pty Ltd [2014] NSWSC 1674, [99] (McCallum J). See also Rolph (n 2) para 17.110.

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the defamatory imputations and contain an expression of regret that the imputations were made, that is late, or is regarded as insincere cannot be relied upon in mitigation of damages.40 Failure to publish an apology or retraction of defamatory imputations is relevant to the assessment of ordinary compensatory damages41 and to aggravated compensatory damages.42

(ii) Canada All of the common law Canadian provinces have enacted specific provisions that provide for an apology to operate in mitigation of damages. Section 20 of Ontario’s Libel and Slander Act, RSO 1990, c L12 provides: In an action for libel or slander where the defendant has pleaded a denial of the alleged libel or slander only, or has suffered judgment by default, or judgment has been given against the defendant on motion for judgment on the pleadings, the defendant may give in evidence, in mitigation of damages, that the defendant made or offered a written apology to the plaintiff for such libel or slander before the commencement of the action, or, if the action was commenced before there was an opportunity of making or offering such apology, that the defendant did so as soon afterwards as the defendant had an opportunity.

Similar provisions are found in the other Provinces.43 The provision was modelled upon a section contained in the model draft Defamation Act (section 5) promoted by the Uniform Law Conference of Canada as early as 1944,44 itself drawn from the UK Libel Act 1843.45 Section 20 is only applicable where the defendant has pleaded a denial of the alleged slander or libel, or has suffered default judgment, or judgment has been given against the defendant on the pleadings. The first ground, pleading a denial, means that a defendant who pleads a specific defence such as justification, does not bring themselves with the section.46 Nevertheless, a defendant who cannot come within the specific statutory provision may still plead an apology in mitigation of damages as a matter of common law assessment principles, although a plea of justification at trial negates any apology offered at an earlier stage.47 For an apology to be effective in mitigating damages, it must ‘amount to a full and frank withdrawal of the charges conveyed and should be worded so that an impartial person would consider it reasonably satisfactory in all the circumstances’.48 An apology that states 40

Cerutti v Crestside Pty Ltd [2014] QCA 33 [44]. Clark v Ainsworth (1996) 40 NSWLR 463. 42 Herald and Weekly Times Ltd v McGregor (1928) 41 CLR 254, 263. 43 British Columbia, Libel and Slander Act, RSBC 1996, c 263, s 10; Alberta, Defamation Act, RSA 2000, c D-7, s 4; Saskatchewan, Libel and Slander Act, RSS 1978, c L-14, s 4; Manitoba, Defamation Act, RSM 1987, c D20, s 4; New Brunswick, Defamation Act, RSNB 2011, c 139, s 4; Nova Scotia, Defamation Act, RSNS 1989, c 122, s 5; Prince Edward Island, Defamation Act, RSPEI 1988, c D-5, s 4; and Newfoundland, Defamation Act, RSN 1990, c D-3, s 5. 44 See Proceedings of the Thirtieth Annual Meeting of the Conference of Commissioners on Uniformity of Legislation in Canada (1948) www.ulcc.ca/images/stories/Past_Proceedings_PDF/1948ULCC0030.pdf 91. 45 6 & 7 Vict c 96 s 1. 46 Tremblay v Campbell (2010) Nfld & PEIR 1 (Nfld CA) [34], [36]. 47 Tait v Westminster Radio Ltd (1984) 58 BCLR 194 (CA) [23], [33], [34]; Manno v Henry 2008 BCSC 738 [207]. 48 Carter v Gair (1999) 64 BCLR (3d) 272 (CA) [18]. In Manno v Henry (n 46) [209] the test was said to be ‘whether a reasonable person to whom the apology was published would understand it to be a sufficiently complete and unqualified apology so as to be reasonably satisfactory in all the circumstances’. 41

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that it is only being offered because the defendant is responding to the demands of the claimant’s lawyer to do so lacks sincerity, because it appears to be offered through duress and is thus equivocal.49 Similarly, an apology that does not clearly refute previous imputations or state that they were based on wrong information may be accorded little value.50 An effective apology has been described as one that ‘acknowledges error’, ‘expresses regret for the error’ and ‘expresses an apology for the erroneous statements’.51 Although these statutory provisions are worded to contemplate both an actual apology ‘made’ as well as one that is ‘offered’, the latter can only have nominal impact on mitigating the damages.52 To take full advantage of the statutory provision a defendant should publish an apology even where the claimant has not agreed to its terms.53 Even an apology that deals with only part of the alleged defamatory statements will be better than none in mitigating damages. All Canadian common law provinces contain specific apology provisions aimed at addressing the specific concerns of newspapers and broadcasters.54 These provisions are similar to that contained in the UK Libel Act 1843.55 Key to these provisions is that the defendant made the defamatory remark without actual malice or without gross negligence, and that at the earliest opportunity afterwards, the defendant did publish or broadcast a full apology before litigation was commenced. Again, where the newspaper or broadcaster falls within the statutory provision then the defendant’s actions in making the apology can be pleaded in mitigation of damages. There is some variance amongst the provinces. Ontario, British Columbia and Saskatchewan speak of the defendant making a ‘full apology’, while the other provinces require both a ‘full and fair retraction’ as well as a ‘full apology’. The absence of a retraction and apology can be used to lift both general and aggravated damages.56

B. Statutory Protection of Apologies The law supports settlement negotiations through common law and statutory rules that exclude evidence of ‘without prejudice’ settlement negotiations and communications, including apologies, made in confidential dispute resolution processes such as mediation. More specifically, the Defamation Act 2005 (NSW) provides that an offer to make amends is taken to have been made without prejudice, unless the offer provides otherwise.57 Further, section 19 of the Act renders inadmissible in any legal proceedings any statement

49

Tremblay v Campbell (2010) Nfld & PEIR 1 (Nfld CA) [38]. ibid at [34]; Warman v Veck 2015 ONSC 4860. 51 Ramsey v Pacific Press, a Division of Southam Inc 2000 BCSC 1551 [78]. 52 Carter v Gair (n 48) [18]. 53 Manno v Henry (n 47) [209], [210]; Carter v Gair (n 48) citing Begbie CJ in Hoste v Victoria Times Publishing Co (1889) 1 BCR 365 (BCSC) 366. 54 British Columbia Libel and Slander Act (n 43), s 6; Alberta Defamation Act (n 43), s 15; Saskatchewan Libel and Slander Act (n 43), s 7; Manitoba Defamation Act (n 43), s 16; Ontario Libel and Slander Act, RSO 1990, s 9; New Brunswick Defamation Act (n 43), s 15; Nova Scotia Defamation Act (n 43), s 21; Prince Edward Island Defamation Act (n 43), s 17; and Newfoundland Defamation Act (n 43), s 18. 55 6 &7 Vict c 96, s 2. 56 Hill v Church of Scientology of Toronto [1995] 2 SCR 1130 [182], [191]. 57 Defamation Act 2005 (NSW), s 13(4). 50

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or admission made in connection with an offer to make amends, other than as allowed by subsection (2).58 In recent decades, Australian and Canadian parliaments have enacted legislation that extends the circumstances in which apologies are legally protected.59 These provisions, often referred to as ‘apology legislation’, apply to a broad range of civil proceedings and remove legal disincentives to apologies for harmful events. The legislation seeks to overcome a defendant’s reluctance to apologise for a defamatory publication for fear of their apology being used as evidence of fault or liability.60 The Canadian legislation applies to any civil proceedings, which include defamation proceedings. In Australia, section 20 of the Defamation Act 2005 (NSW) specifically provides for the effect of an apology on liability for defamation. This section ‘is designed to encourage defendants to say sorry’61 and is consistent with the suggestion of the Australian AttorneyGeneral’s Department that defendants are more likely to apologise for, or retract, defamatory statements if their apology or retraction is not taken to be an express or an implied admission of liability.62 Section 20(1) provides that an apology made in connection with any defamatory matter: (a) does not constitute an express or implied admission of fault or liability by the person in connection with that matter; and (b) is not relevant to the determination of fault or liability in connection with that matter. Subsection 20(2) provides that evidence of an apology made in connection with any defamatory matter by a person is not admissible in any civil proceedings as evidence of the fault or liability of the person in connection with that matter. Subsection 20(3) provides that nothing in section 20 limits the admissibility of evidence of an apology in mitigation of damages. Both section 20 of the Defamation Act 2005 (NSW) and the Canadian legislation protect what is usually referred to as a ‘full’ apology, that is an apology in which the person offering

58 s 19 of the Defamation Act 2005 (NSW) renders inadmissible evidence of the content of an offer to make amends under div 1 of Pt 3 of the Act but it does not exclude evidence of the occurrence of such an offer and related communications (emphasis added). See Pingel v Toowoomba Newspapers Pty Ltd (n 14) [28] (Fraser JA), [164]–[170] (Applegarth J). 59 In Australia, see Australian Capital Territory, Civil Law (Wrongs) Act 2002 (ACT), ss 12–14; New South Wales, Civil Liability Act 2002 (NSW), ss 67–69; Northern Territory, Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 11–13; Queensland, Civil Liability Act 2003 (Qld), ss 68–72, 72A–72D; South Australia, Civil Liability Act 1936 (SA), s 75; Tasmania, Civil Liability Act 2002 (Tas), ss 6A–7; Victoria, Wrongs Act 1958 (Vic), ss 14I–14J; Western Australia, Civil Liability Act 2002 (WA), ss 5AF–5AH; in Canada, see Alberta, Alberta Evidence Act, RSA 2000, c A-18, s 26.1; British Columbia, Apology Act, SBC 2006, c 19; Manitoba, the Apology Act, CCSM, c A98; Newfoundland and Labrador, Apology Act, SNL 2009, c A-10.1; Northwest Territories, Apology Act, SNWT 2013, c 14; Nova Scotia, Apology Act, SNS 2008, c 34; Nunavut, Legal Treatment of Apologies Act, SNu 2010, c 12; Ontario, Apology Act, 2009, SO 2009, c 3; Prince Edward Island, Health Services Act, RSPEI 1988, c H-1.6, ss 26, 32; Saskatchewan, the Saskatchewan Evidence Act, SS 2006, c E-11.2, s 23.1. In England, see Compensation Act 2006 (UK) c 29, s 2. 60 See JC Kleefeld, ‘Thinking Like a Human: British Columbia’s Apology Act’ (2007) 40 University of British Columbia Law Review 769; P Vines, ‘Apologising to Avoid Liability: Cynical Civility or Practical Morality?’ (2005) 27 Sydney Law Review 483. 61 NSW Hansard, Defamation Bill, 18 October 2005, the Hon Henry Tsang, Parliamentary Secretary, referred to in Hunt v Radio 2SM Pty Ltd (No 2) [2010] NSWDC 43, [36] (Gibson DCJ). 62 Australian Government, Attorney-General’s Department, Revised Outline of a Possible National Defamation Law (2004) 33.

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the apology not only expresses regret, remorse or sorrow but also expressly or impliedly accepts fault or liability for the incident for which they are apologising.63 The result is that evidence of an offer to publish an apology, or a published apology, is inadmissible in subsequent defamation proceedings as evidence of fault or liability. It remains admissible as evidence of mitigation in both jurisdictions and to other findings including whether the defences discussed in the next section apply.

IV. Defences Involving Apologies for Defamatory Publications Defamation defences are an integral part of the balance the law strikes between protection of reputation and freedom of expression. In this section, we examine the circumstances in which a sufficient apology can give rise to a defence to a defamation claim. The law in Canada and Australia provides two examples of the way that corrections, retractions and apologies feature in defamation defences.

A. The Statutory Defence of Retraction and Apology In Canada, all of the common law provinces provide protection to newspapers and broadcasters against claims for general damages, although not actual damages, for innocent acts of defamation. For example, Ontario’s Libel and Slander Act provides: 5. (1) No action for libel in a newspaper or in a broadcast lies unless the plaintiff has, within six weeks after the alleged libel has come to the plaintiff ’s knowledge, given to the defendant notice in writing, specifying the matter complained of, which shall be served in the same manner as a statement of claim or by delivering it to a grown-up person at the chief office of the defendant. (2) The plaintiff shall recover only actual damages if it appears on the trial, (a) that the alleged libel was published in good faith; (b) that the alleged libel did not involve a criminal charge; (c) that the publication of the alleged libel took place in mistake or misapprehension of the facts; and (d) that a full and fair retraction of any matter therein alleged to be erroneous, (i) was published either in the next regular issue of the newspaper or in any regular issue thereof published within three days after the receipt of the notice mentioned in subsection (1) and was so published in as conspicuous a place and type as was the alleged libel, or (ii) was broadcast either within a reasonable time or within three days after the receipt of the notice mentioned in subsection (1) and was so broadcast as conspicuously as was the alleged libel. 63 There is no equivalent to s 20 in the UK. Section 2 of the Compensation Act 2006 (UK), which applies in England and Wales, and which provides: ‘An apology, an offer of treatment or other redress, shall not of itself amount to an admission of negligence or breach of statutory duty’ does not apply to liability for defamation. The provisions of this Act apply to determinations of liability for breach of duty of care and are not intended to change the existing law. See Compensation Act 2006 (UK) Explanatory Notes, www.legislation.gov.uk/ukpga/2006/29/ notes/contents.

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(3) This section does not apply to the case of a libel against any candidate for public office unless the retraction of the charge is made in a conspicuous manner at least five days before the election.64

There is a slight variance within the provinces over whether both a retraction and an a pology must be published or broadcast.65 A further variance is the requirement in most provinces of an additional criterion to be proven, namely, ‘that there was reasonable grounds to believe that publication of the alleged defamatory material was for the public benefit’.66 The history of these provisions can be traced back to a Michigan statute of 1885, itself copied by Ontario in 1887 and British Columbia in 1891.67 The purpose behind the statutory provision is seen as a specific concession to the news media, which hold a special place in society. The provision ‘saves the press from needless court costs’ and ‘discourages litigation for inadvertent libels published in the haste of meeting deadlines’.68 To come within the protection afforded by the provision the defendant must have acted in good faith. This is an objective standard. ‘An honest belief in the truth of the material published is not sufficient to constitute good faith. That belief must be founded on reasonable grounds.’69 Thus a newspaper or broadcaster that is negligent in checking the veracity of the defamatory statements is not exercising good faith even if it holds an honest belief in their truth.70 As to the second requirement, that the defamation took place in mistake or misapprehension of the facts, this refers to a mistake or misapprehension of the facts outlined in the actual defamatory words themselves, and not a mistake or misapprehension over the honesty of the person who supplied the information upon which the publication was based.71 For those provisions that have a ‘public benefit’ requirement, this would appear to be easily met by virtue of the fact that it is a newspaper or broadcaster making the statement. Finally, the need for a retraction and/or full apology incorporates the understanding of what constitutes an effective apology previously discussed. With respect to the actual publication of the retraction and/or apology, the provision requires publication in as conspicuous a place and type as the alleged defamatory publication. This does not require equivalence, but is met where the retraction is in a ‘location ordinarily read by those who might have read the libel, set-off and standing out from other materials on the page’.72 The provision also has an important safeguard for politicians in subsection (3), which prevents the news media from claiming the protection of the provision where it has defamed a politician immediately before an election, only to publish a retraction immediately after the election.

64 Ontario Libel and Slander Act, RSO 1990, c L12, s 5; British Columbia Libel and Slander Act (n 43), s 7; Alberta Defamation Act (n 43), s 16; Saskatchewan Libel and Slander Act (n 43), s 8; Manitoba Defamation Act (n 43), s 17; New Brunswick Defamation Act (n 43), s 16; Nova Scotia Defamation Act (n 43), s 22; Prince Edward Island Defamation Act (n 43), s 18; and Newfoundland Defamation Act (n 43), s 19. 65 British Columbia requires a full apology. Ontario and Saskatchewan require a full and fair retraction, and the remaining provinces require both a full and fair retraction and a full apology. 66 Found in all provinces except for Ontario. 67 This lineage is described by Fleming (n 9) 28. A similar model provision was noted by the Commissioners on Uniformity of Legislation in Canada in their 1944 Model Act, s 18, and requiring both retraction and apology. 68 Murray Alter Talent Associates Ltd v Toronto Star Newspapers Ltd (1995) 124 DLR (4th) 105 (Ont Div Ct) [19] (Borins J, citing J Fleming, The Law of Torts, 4th edn (Sydney, The Law Book Co Ltd, 1992) 544). 69 Teskey v Canadian Newspapers Co (1989) 68 OR (2d) 737 (CA) 746. 70 Ramsey v Pacific Press, a Division of Southam Inc (n 51). 71 Teskey v Canadian Newspapers Co (n 69). 72 ibid [36].

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The provision is a bar to general damages. Although the terms, ‘actual damages’ or ‘special damages’ are not defined in the respective provincial legislation, they have been interpreted to require actual proof of pecuniary loss and cannot be presumed as with general damages. Examples of special damages would be actual proof that demonstrates a general falling of business, or decline of patronage and custom,73 although significant awards of special damages are the exception rather than the rule.74

B. The Defence of Offer to Make Amends The offer to make amends is a mechanism that aims to encourage parties to settle a defamation claim quickly without a trial and on terms other than the payment of damages. Broadly speaking, these provisions allow a defendant to make an offer to the plaintiff to publish a correction, an apology and to pay compensation and expenses. If the plaintiff accepts the offer to make amends, they are barred from commencing or continuing an action in defamation. If the plaintiff does not accept the offer, then in subsequent proceedings the defendant may rely on their offer to make amends as a defence.

(i) Australia Prior to 2005 an offer to make amends defence was available in some states and territories but was rarely used. In NSW this has been explained by the fact that prior to 2002 the defence only applied to innocent publications being publications where the defendant exercised reasonable care, did not intend the matter to be defamatory and was unaware of the circumstances making the matter in question defamatory.75 Although these requirements were removed in 2002 the defence was still unpopular with respondents because it had to include an apology. This raised fears of making an apology that would be treated as an admission of liability.76 This fear is addressed in 2005 by the introduction of section 20 of the Defamation Act 2005 (NSW) referred to above in section IIIB. The offers to make amends mechanism promotes early dispute resolution,77 one of the four objects of the Defamation Act 2005 (NSW), stated in section 3 of the Act to be: (a) to enact provisions to promote uniform laws of defamation in Australia; (b) to ensure that the law of defamation does not place unreasonable limits on freedom of expression and, in particular, on the publication and discussion of matters of public interest and importance; (c) to provide effective and fair remedies for persons whose reputations are harmed by the publication of defamatory matter; and (d) to promote speedy and non-litigious methods of resolving disputes about the publication of defamatory matter.

An offer to make amends can be made before litigation is commenced. It is not mandatory to use the offer to make amends provisions, and this settlement process is not 73

Botiuk v Toronto Free Press Publication [1995] 3 SCR 3 [109], [111]. Hodgson v Canadian Newspapers Co Ltd (2000) 49 OR (3d) 161 (CA) 184. 75 Styles (n 30). 76 ibid. 77 Pingel v Toowoomba Newspapers Pty Ltd (n 14) [91] (Applegarth J). 74

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exclusive:78 a defendant can choose instead to use the offer of compromise provisions in the Uniform Civil Procedure Rules.79 An offer to make amends can be made in response to a written ‘concerns notice’ by a plaintiff that informs the publisher of particulars of the defamatory imputations in question80 or, if proceedings have been commenced against the publisher, before a defence is filed. The offer of amends process, therefore, can be activated by the plaintiff or the defendant. If a defendant does not make an offer within the terms of the provision a plaintiff will have to commence proceedings.81 Aside from cost implications for the defendant in the event that the plaintiff is successful, there are no consequences for a defendant who does not engage with the process. This contrasts with the position of the plaintiff against whom a complete defence will be raised if they do not accept an offer subsequently held to be ‘reasonable’. An offer to make amends must be made promptly. It cannot be made more than 28 days after a written concerns notice has been given by a plaintiff to a publisher or a defence has been served in an action brought by the plaintiff.82 Timeliness of response is also required in order for a publisher to have a defence against an action for defamation in the event that the offer is rejected. The publisher must make the offer ‘as soon as practicable after becoming aware that the matter is or may be defamatory’.83 There are no prescribed time limits within which an offer must remain open for acceptance, be accepted or ‘not accepted’.84 This does not mean that the offer must be held open until the trial.85 The length of time that an offer has been held open, nonetheless, may be a factor in deciding whether an offer was reasonable.86 A publisher may make an offer to make amends to a plaintiff in relation to all or only some of the allegedly defamatory matter. The provisions introduced in 2005 mandate an offer to publish a ‘reasonable correction’.87 Significantly, an offer to publish an ‘apology’ is optional rather than a mandated term of an offer to make amends.88 The publication of an apology is, however, a factor that a court must consider when determining whether the offer is ‘reasonable’ if the offer is rejected and the claimant prosecutes their claim. An offer to pay compensation is not mandatory. The defendant can offer to pay a stated amount,

78 s 12(2) of Defamation Act 2005 (NSW) provides that the offer of amends provisions can be used instead of any rules of court or any other law in relation to payment into court or offers of compromise. The legislation uses the terms ‘aggrieved person’ and ‘publisher’, which reflects the facts that this defence involves the resolution of defamation disputes without litigation. In this paper we have substituted the term ‘plaintiff ’ for ‘aggrieved person’ and ‘defendant’ for ‘publisher’. 79 Uniform Civil Procedure Rules (n 23). 80 Defamation Act 2005 (NSW), s 14(2). 81 A plaintiff who chooses to continue negotiations rather than commence an action within the prescribed limitation period and later seeks an extension of time ‘runs a substantial risk’ that the court will not be satisfied that an extension can be granted. See Pingel v Toowoomba Newspapers Pty Ltd (n 14) [104] (Applegarth J). 82 Defamation Act 2005 (NSW), s 14. 83 ibid s 18(1)(b). 84 ibid s 18(1). 85 Bushara v Nobananbas Pty Ltd & Anor [2012] NSWSC 63 [192], [195], [198] (Nicholas J). 86 ibid. 87 s 15(1)(d) of the Defamation Act 2005 (NSW). Two other mandatory requirements are: if material containing the matter has been given to someone else by the publisher, to offer to take reasonable steps to tell the other person that the matter is or may be defamatory, (Defamation Act 2005 (NSW), s 15(1)(e)), and to include an offer to pay the expenses reasonably incurred by the aggrieved person. 88 Other non-mandatory terms are set out in Defamation Act 2005 (NSW), s 15(1)(g).

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an amount to be agreed, or an amount determined by an arbitrator or a court.89 If the defendant chooses to offer a stated amount which the plaintiff does not accept, the plaintiff does not have access to the court to determine the compensation payable other than by rejecting the offer, bringing proceedings, and relying on the defendant’s inability to invoke the defence. An offer can be withdrawn and remade on the same or different terms.90 If the plaintiff accepts the offer and the defendant carries out the terms of the offer, the aggrieved party cannot ‘assert, continue or enforce an action for defamation against the publisher in relation to the matter in question.91 This is the case even if the offer was limited to ‘any particular defamatory imputations’.92 A court may make orders for payment of expenses and costs of a plaintiff, and may assess costs on an indemnity basis.93 If an offer is not accepted, the defendant will have a full defence if they can establish three requirements. First, the offer was made as soon as practicable. Second, that at any time before the trial they were ready and willing to carry out the terms of the offer; and third, if in all the circumstances the offer was reasonable. The Act sets out in section 18(2) the factors to be considered in determining whether an offer to make amends is reasonable. Relevantly to this chapter, section 18(2)(a) provides that a court: must have regard to any correction or apology published before any trial arising out of the matter in question, including the extent to which the correction or apology is brought to the attention of the audience of the matter in question …

The court must take into account the prominence given to the correction or apology, the period that elapses between publication of the matter in question and publication of the correction or apology,94 and may have regard to other factors.95

(ii) The UK96 The UK legislation provides that an offer to make amends can only be made by a p ublisher.97 98 The offer must be made before a defence is served. Unlike in Australia, all of the components of an offer to make amends are mandatory. An offer must include an offer to make a suitable correction of the statement complained of and a sufficient apology to the aggrieved party and to publish the correction and apology in a manner that is reasonable and practicable in the circumstances.99 An offer must also include an offer to pay compensation.100 89

ibid s 15(2). ibid s 18(1)(b). 91 ibid s 17(1). 92 ibid. 93 ibid s 17(2). 94 ibid s 18(2)(a). 95 ibid s 18(2(b). 96 Similar provisions were introduced in Ireland by the Defamation Act 2009, ss 22, 23. For discussion see N Cox, ‘The Defence of Offer of Amends and the Defamation Bill 2006’ (2007) 2 Quarterly Review of Tort Law 1. 97 Defamation Act 1996 (UK), s 2(1). 98 ibid s 2(5). 99 ibid s 2(4). 100 ibid s 2(4)(d). 90

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Once an offer is accepted, the claimant is unable to bring or continue conventional defamation proceedings.101 The offer to make amends mechanism, where it is available, also contemplates the court becoming involved when an offer has been accepted.102 The court can assess payments of compensation by prior agreement of the parties or in the event that they cannot agree on an amount. In this role the court is not determining liability, but assisting the parties to give effect to their contractual agreement. If the offer is not accepted, the fact of having made it will be a defence, unless the claimant can establish the fault element.103 A defendant does not have to rely on this defence but if they do then they are unable to plead other defences. The offer may be relied upon by the defendant in mitigation of damages, whether or not it was relied on as a defence.104

(iii) Canada One Canadian province has enacted an ‘offer of amends’ provision in their defamation statute. Nova Scotia105 has enacted a provision closely modelled on the now repealed United Kingdom provision found in the Defamation Act 1952, section 4.106 The provision would appear to have had negligible effect, it never having been cited by any court in that jurisdiction. The lack of take-up of an offer of amends provision by other provinces may be surprising because it has been a feature of the work of Uniform Law Conference of Canada since 1983, when the Saskatchewan Commissioners placed a detailed report on defamation reform, including a recommendation to adopt an offer of amends provision, before the Conference. In time, that report was debated resulting in the inclusion of an offer of amends provision (section 13) in the draft Defamation Act adopted by the Uniform Law Conference in 1994. The provision deals specifically with a news publisher (not broadcaster) who has innocently defamed a claimant; a defamatory act not accompanied by a lack of reasonable care but that has defamed unintentionally, usually by innocent mistake or innuendo. It is clear from the report of the Saskatchewan Commissioners accepted by the Uniform Law Conference that they were much inspired by the work of Professor John Fleming107 on the desirability of extending the availability of retraction and apology, and that this was in some way a response to the problem of defamation being a strict liability tort that left innocent defamers at the mercy of juries assessing damages.108 On the other hand, the Commissioners also acknowledged the criticism of the offer of amends provisions on account of their cumbersome procedure.

101

ibid s 3(2). ibid s 3(5). This provision has given rise to considerable ‘satellite’ proceedings. See H Johnson, ‘Defamation: the Media on the Defensive?’ (2008) 13 Communications Law 126. 103 Defamation Act 1996 (UK), s 4(2)–(3). The plaintiff will need to prove that the defendant ‘knew or had reason to believe’ that the statement complained of referred to the plaintiff and was both false and defamatory. This involves rebutting a presumption that the defendant did not know and had no reason to believe that was the case. The words ‘knew or had reason to believe’ have been held to import a standard of ‘recklessness’; Milne v Express Newspapers [2004] EWCA Civ 664 [49]. 104 Defamation Act 1996 (UK), s 4(5). 105 Nova Scotia Defamation Act (n 43), s 16. 106 15&16 Geo 6&1 Eliz 2 c 66. 107 Citing extensively from Fleming’s article, Fleming (n 9). 108 See Uniform Law Conference of Canada proceedings 1983 (Quebec) App G, 134. 102

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The British Columbia Law Reform Commission did consider adoption of a similar ‘offer of amends’ provision modelled on the same Defamation Act 1952 (UK), but declined to do so on the basis that the procedure adopted by the legislation was complicated and that, in the opinion of the Law Commission, it had not proved effective in the UK. The Commission also thought that its draft expansion of the defence of qualified privilege would go some way to provide protection to the innocent defamer.109

V. The Offer to Make Amends—A Fair Balance? As seen in the previous section, there are substantive differences in the operation of the Australian provisions and the UK provisions. Notably in the UK, apology, payment of compensation as well as correction, are mandatory terms of an offer to make amends, and there is greater potential for the court to play a role in settling the dispute.110 The Australian provisions have been described as conferring ‘substantial tactical advantages upon publishers with corresponding disadvantages to plaintiffs’,111 and as ‘draconian’112 and able to ‘stymy the litigious path to vindication of reputation’113 of a plaintiff. As the offer to make amends potentially affords a complete defence, it provides an incentive to defendants to make offers to settle defamation disputes at an early stage.114 The corollary ‘is that plaintiffs are under pressure to accept reasonable offers of settlement made by defendants at an early stage’.115 The UK and Australian offer to make amends provisions have shifted from providing a defence to an innocent publisher (as remains the case in Canada) to providing a defence to discourage litigation. It is not possible in this chapter to evaluate all the advantages and disadvantages to plaintiffs and defendants in these mechanisms. Consistent with the aims of this chapter we discuss in this section two concerns that arise out of the offer to make amends provisions. The first concern is that the offer to make amends defence is an unacceptable interference with access to justice. The second concern is that mandating only a ‘reasonable correction’ in the Australian provisions is unjustified in view of the distinct and central role of apologies in defamation law.

A. The Offer to Make Amends and Concerns about Access to Justice The encouragement of non-litigious dispute resolution within the civil justice system in recent decades has attracted a good deal of scholarly attention. Much of the debate about 109

Law Reform Commission of British Columbia, Report on Defamation (LRC 83, 1985) 70. is beyond the scope of this chapter to discuss these differences in detail. See C Graville, ‘an Analysis of the “Offer to Make Amends” Provisions Under the Uniform Defamation Laws in Australia’ (LLB Honours thesis, University of Western Australia 2015) for a detailed comparison of the Australia and UK provisions, copy on file with the authors. 111 Pingel v Toowoomba Newspapers Pty Ltd (n 14) [63] (Fryberg J). 112 Pedavoli v Fairfax Media Publications Pty Ltd (n 39) [34]–[35] (McCallum J). 113 M Collins, ‘Five Years On: A Report Card on Australia’s National Scheme Defamation Laws’ (2011) 16 Media and Arts Law Review 317. 114 ibid. 115 ibid. 110 It

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the merits of this development is discussed by Dame Genn in Judging Civil Justice, who raises the question of the importance that should be attached to judicial determination as compared with private settlement.116 The offer to make amends provisions provide an opportunity to examine the role of civil justice as a public good, and the importance of adjudication.117 One of the threats to the civil justice system identified by Genn and others is the attack by supporters of alternative dispute resolution against the principles and p urpose of the civil justice system, thereby undermining the value of legal determination.118 The offer to make amends provisions do not mandate the process, and a plaintiff is still entitled to have recourse to the court system to resolve their defamation dispute, albeit at greater risk if the defendant activates the provisions. The effect therefore, while not to preclude legal determination, is to greatly increase the pressure on a plaintiff to settle. The UK defence has been justified as a way to ‘discourage that small minority of plaintiffs who wished to proceed to trial from purely financial motives, rather than being motivated by desire for vindication’.119 Parliament intended to and did shift the balance in favour of making offers to make amends and away from litigation.120 The Court of Appeal concludes that this ‘is not perhaps to say that the balance is shifted in favour of defendants, since claimants also benefit’.121 Even if one is satisfied that it is appropriate for the law to promote and encourage outof-court settlement which parties are free to agree to with informed consent (and frequently do in civil disputes), and that ‘a mechanism which offers appropriate vindication and proper compensation’ is not ‘a recipe for irresponsible journalism’,122 the question remains whether it is justifiable for statute to provide that a right of action will be taken away from parties who refuse to settle their dispute extracurially and insist on their legal remedies. Descheemaeker is highly critical of the offer to make amends defence and the circumstances in which an apologetic defendant is granted a ‘shield against liability’ unless he is shown to have been malicious.123 His criticisms go deeper than the operation of a legislative defence which extends protection beyond an innocent defamer to the negligent defendant.124 Descheemaeker considers it ‘indefensible’ for the law to grant, in principle, a remedy in given circumstances and, whilst encouraging the parties to sort out their dispute themselves, then punish an injured party for refusing to do so.125 With these objections in mind, Descheemaeker proposes that the defence available when the defendant’s offer is refused ought to be removed.126

116

H Genn, Judging Civil Justice (Cambridge, Cambridge University Press, 2008) 10. ibid 16–24. ibid 25. 119 Nail v News Group Newspapers [2004] EMLR 19 [34] (Eady J) referring to the conclusions set out at VII.11 et seq of the Neill Committee on Practice and Procedure in Defamation Report (July 1999). 120 Milne v Express Newspapers [2005] 1 All ER 1021 [46]. 121 ibid. 122 ibid. 123 E Descheemaeker, ‘Mapping Defamation Defences’ (2015) 78(4) Modern Law Review 641, 688. This criticism applies similarly to the Irish Defamation Act 2009 offer to make amends provision (ss 22–24) and to the Australian legislation. 124 Descheemaeker (n 123) 668, referring to the UK provisions as explained in Milne v Express Newspapers (n 120) [48]–[51] (CA). 125 ibid 668. 126 ibid. 117 118

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We do not consider it indefensible for the law to create a defence that restricts access to the courts in specified circumstances. We do, however, consider that the circumstances in which legislation provides that this defence can arise need to be justified by reference to the objects of defamation law. The defence cannot be justified solely on the basis of encouraging non-litigious outcomes because, as Descheemaeker rightly says, this is available to the parties in any case. However, the benefit to parties and the public interest in having laws that encourage prompt resolution of defamation disputes and on terms that cannot be achieved by court order is a factor in support of the offer to make amends.

B. Offers to Publish an Apology by Way of Amends As explained in section IV, once an offer within the terms of the UK legislation is made, the defence that arises presumptively can only be rebutted by proving ‘reckless’ publication by the defendant. In Australia, for the defence to be made out the defendant must prove that they made an offer that, in all the circumstances, was ‘reasonable’. Another notable difference between the Australian and the UK offer to make amends provisions is that the UK Act requires a defendant to offer to make amends by offering, amongst other things, a ‘suitable correction’ and a ‘sufficient apology’. One of the objects of the Defamation Act 2005 (NSW) is to provide ‘effective and fair remedies for persons whose reputations are harmed by the publication of defamatory matter’.127 Despite being ‘quite prescriptive as to its content’,128 the Defamation Act 2005 (NSW) is less prescriptive than the UK provisions as to the terms of an offer.129 Although the offer to make amends mechanism is, ultimately, a statutory defence, the provisions anticipate resolution on the remedial terms on which parties commonly settle defamation disputes. In our view, for the following reasons, it is not sufficient for the defence to be available to a defendant who has offered to publish a correction without an offer to publish a ‘sufficient’ or ‘reasonable’ apology. We proceed on the basis that ‘correction’ does not mean ‘correction and apology’ for the simple reason that the two are used distinctively in the offer to make amend provisions. First, due to the way the mechanism operates, a plaintiff who seeks more than a published correction in the form of an expression of regret for the publication and the harm to their reputation and embarrassment it caused, or an acknowledgement that the defendant was responsible for the erroneous publication, must reject the offer and rely on the offer of amends being held to be unreasonable overall. On the other hand, a defendant who does not wish to apologise can decide not to invoke the offer of amends defence. As the provisions stand, a defendant can proceed to publish what they consider to be a reasonable correction and rely on the defence. The reasonableness of the published correction will be judged at a later time than when the plaintiff is deciding whether to accept or reject the offer.130

127

Defamation Act 2005 (NSW), s 3(c). Pedavoli v Fairfax Media Publications Pty Ltd (n 39) [35] (McCallum J). 129 The UK provisions also mandate an offer to pay compensation. The availability of summary proceedings for a claim to be struck out (see section II above) provides a mechanism for a defendant to avoid the payment of compensation. 130 Defamation Act 2005 (NSW), Pt 3, div 1. 128

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Second, the intent behind section 20 of the Defamation Act 2005 (NSW) and provisions that apply to civil proceedings more generally is to address the fear that an apology will be treated as an admission of fault or liability. These provisions are aimed specifically at apologies offered outside the protection of ‘without prejudice’ negotiations and confidential dispute resolution processes. Although the aim of introducing section 20 to counter this fear is evident, no explanation is provided in the parliamentary debates as to why the mandatory apology requirement was omitted. Possible explanations for the omission are: a concern that defendants will be discouraged from using provisions if they are required to offer an apology, notwithstanding the operation of sections 19 and 20, and the belief that mandatory terms unduly interfere with a publisher’s freedom of expression. The first explanation presupposes that section 20 is incapable of achieving its purpose. The second explanation, in combination with the structure of the mechanism, prefers defendants’ interests over plaintiffs’ remedial outcomes. We recognise that, in practice, a defendant might be willing to offer to publish an apology in order to settle a defamation dispute and may need to do so to satisfy the ‘reasonable offer’ requirement in section 18. This does not address the fact, however, that legislation which mandates a ‘reasonable correction’ but not an apology of some kind to ‘make amends’ for a publication that ‘is or may be defamatory’ casts a ‘shadow’ over the parties’ negotiations. We also recognise that a plaintiff ’s primary concern might well be for the publication of a correction, and they might not seek or even accept an offer to publish an apology. This possibility can be accommodated within the terms of a ‘sufficient’ or ‘reasonable’ apology. Third, what constitutes a ‘sufficient’ or ‘reasonable’ apology will be highly dependent on the facts of each case. The standard of ‘reasonableness’ is judged objectively and is not determined by what the plaintiff considers to be acceptable. The inquiry into what is a ‘reasonable’ apology is similar in many ways to the inquiry into the mitigating effect of a published apology. Although the courts judge the sincerity of an apology when assessing damages, this will be only one of many factors taken into account in the assessment of the suitability of reasonableness of an apology in a particular case. In most cases, some form of apology will be expected for an offer to make amends to be reasonable for the purposes of section 18.131 This is the case even though there may be cases where ‘publication of a reasonable correction combined with a contrite apology (entailing acceptance of responsibility for the defamation) might “obviate” the need for payment of damages as well.’132 This suggests that the separate treatment of corrections and apologies in section 15 does not sit well with the roles attributed to these remedies by the courts. The offer to make amends provisions deal with minor matters as well as more serious defamation cases. In minor cases, an apology for offence caused and setting the record straight may suffice.133 Also, as noted in section IV, in contrast to the UK, under the Australian provisions a defendant does not have to give up other defences, including justification and triviality, in order to avail themselves of the offer to make amends defence. In summary, we submit that to make ‘amends’ for the purposes of a defence that relates to publication of matter that is, or may be, defamatory involves more than a correction of facts. 131 132

133

See, eg, Sleeman v Tuloch Pty Ltd (No 3) [2013] NSWDC 92. Pedavoli v Fairfax Media Publications Pty Ltd (2014) ALR 166, 183 (n 39). See, eg, Sleeman (No 3) (n 131) [192].

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VI. Conclusions Developments in Canada and Australia and other common law countries indicate that courts and legislatures are motivated to encourage prompt and vindicatory responses in the form of corrections and apologies to defamatory publications while supporting freedom of expression. In Canada, mitigation and the defence of retraction and apology require a full apology. The defence is also only available to an innocent publisher. In addition to mitigation and evidentiary protection of apology rules, some jurisdictions encourage these vindicatory responses through an offer to make amends defence. There is some disparity between the offer to make amends provisions in Australia, the UK and Nova Scotia. Largely, this reflects the extent to which these provisions have been revised to make them more attractive to defendants. We conclude that in Canada, the offer to make amends has not taken hold because the legislation that has been considered is not sufficiently attractive to defamation defendants and other legislative provisions are in play. Any future consideration of this settlement focussed defence will benefit from close consideration of twenty-first century iterations in the UK and Australia. We have discussed two grounds of concern about the offer to make amends. First, whether the provisions strike a fair balance between the benefit to the defendant of a potential defence against an unreasonable plaintiff and the benefits to the plaintiff of a prompt and vindicatory outcome against a possibly irresponsible defendant. We submit that one factor that contributes to the imbalance in Australia is the absence of an apology as a mandatory requirement of an offer to make amends. We acknowledge that, in practical terms, the terms of an offer will usually involve a compromise on both sides and an apology as well as a correction is likely to be offered. A defendant needs to give careful consideration to an offer to publish an apology because the reasonableness of any apology, and its prominence and timing are relevant to the determination whether an offer to make amends was reasonable. We conclude, however, that a statutory dispute resolution mechanism that mandates only a reasonable correction and not a reasonable apology is inconsistent with the notion of ‘making amends’ for the publication. Bearing in mind that the provisions do not compel a defendant to apologise, we conclude that there is an inherent shortcoming in a dispute resolution mechanism that offers a defendant the benefit of a full defence without having to offer some form of apology for the harm occasioned to the plaintiff by the publication. Another concern is that a plaintiff is barred from pursuing their claim if they refuse to accept an offer that meets the requirements of the legislation. We conclude that the offer to make amends defence is defensible provided that the mechanism is evenly balanced in favour of plaintiffs and defendants. In the great majority of cases, it is in both parties’ interests to settle a defamation claim without the time, expense and cost of protracted negotiations and litigation. Further, there is a public interest in encouraging settlement of defamation proceedings on fair terms without the need for a trial. We conclude that, overall, the offer to make amends defence is a valuable addition to defamation law in the twenty-first century.

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Part V

Process Challenges and the Privatisation of Justice

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24 Tort and Neo-liberalism ANNETTE MORRIS

Whilst some scholars seek to expose the politics underlying tort ‘law’, this chapter seeks to expose the politics underlying the tort ‘system’ through which that law is administered.1 More specifically, and with a particular focus on England and Wales, it examines the impact of neo-liberal policies pursued since Margaret Thatcher came to power in 1979. Neo-liberalism is a contested concept, but is used here to refer to interrelated economic and ideologically driven policies of deregulation, privatisation and marketisation.2 It is well established that there is a distinction between what tort law offers in principle and what it delivers in practice, as tortious legal principles are mediated through complex institutional arrangements involving liability insurance, legal services and the civil justice system. In combination, these arrangements dictate the extent to which the injured are able and willing to seek tort compensation and what they, both individually and collectively, are able to achieve through the pursuit of tort actions. In other words, they play an important role in determining the prevalence of tort law in society and the role it plays in distributing the costs of injury, managing complex social relations and regulating behaviour. However, these institutional arrangements are contingent upon the wider political environment and, certainly in respect of legal services and civil justice, have changed significantly in recent years with the increasing pursuit of neo-liberal policies. Whilst tort law itself has proved tenacious, the system through which it is administered has posed an inherent tension for the neo-liberal project. Deep-seated belief in the power of markets has led to the liberalisation of legal services and the commercialisation of funding mechanisms to support claiming. The resulting commodification of claims led to the growth of a claims market, which in turn allowed tort to grow. However, the growth of tort is seen to be in tension with broader, neo-liberal goals of self-reliance and free m arket competition and so, ironically, the same political forces that contributed to the growth of the claims market, also called for its containment. Recent and controversial reforms of the claims system (often called the ‘Jackson reforms’) have essentially sought to relieve this tension and to achieve, insofar as neo-liberalism is concerned, an appropriate 1 See, eg, P Cane, Atiyah’s Accidents, Compensation and the Law, 8th edn (Cambridge, Cambridge University Press, 2013); J Conaghan and W Mansell, The Wrongs of Tort, 2nd edn (London, Pluto Press, 1999); R Abel, ‘A Critique of Torts’ (1989–90) University of California Law Review 785 and D Priel, ‘The Political Origins of English Private Law’ (2013) 40 Journal of Law and Society 481. 2 See, eg, D Harvey, Brief History of Neoliberalism (Oxford, Oxford University Press, 2005); S Hall, ‘The Neo-liberal Revolution’ (2011) 25 Cultural Studies 705 and C Crouch, The Strange Non-death of Neo-liberalism (Cambridge, Polity Press, 2011).

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balance between the law, the state and the market. In placing the growth and containment of the claims market in its wider political context, this chapter offers a new perspective on the development of tort policy in recent years and develops literature on law and markets.

I. The Growth of the Claims Market Personal injury claims ‘are not a primal, given element of social life, waiting passively to be counted’.3 Rather, they are constructed through a process of naming, blaming and claiming.4 In accordance with this process, an individual transforms an unperceived injurious experience into a perceived injurious experience (names); attributes that injurious experience to another individual or entity, thereby transforming the perceived injurious experience into a grievance (blames) and then voices that grievance to the individual or entity believed to be responsible (claims). Individuals name, blame and claim by perceiving, interpreting and reacting to circumstances and events in particular ways.5 However, to move through the naming, blaming and claiming process, individuals must be able and willing to do so, which will not always be the case. Individuals may, therefore, name but not blame, or blame but not claim.6 As such, levels of claiming depend on various factors and conditions which inform our legal consciousness and which affect our ability and willingness to transform events into claims.7 These factors include institutional arrangements, which feed into broader legal cultures and shape our behaviours. For example, the availability of alternative sources of compensation, the availability of alternatives to litigation and the underlying role of law and litigation within governance structures can all affect rates of claiming and the extent to which claims are litigated.8 Blankenburg has similarly highlighted the importance of ‘supply-side’ factors, including the size and organisation of the legal profession and also the affordability of their services.9 It is widely acknowledged that lawyers can play an important role in our propensity to claim: Lawyers … help people understand their grievances and what they can do about them. In rendering this service, they almost always produce a transformation: the essence of professional jobs is to

3 M Galanter, ‘Reading the Landscapes of Disputes: What we Know and Don’t Know (and Think we Know) About Our Allegedly Contentious and Litigious Society’ (1983) 31 University of California Law Review 4, 61. 4 W Felstiner, R Abel and A Sarat, ‘The Emergence and Transformation of Disputes: Naming, Blaming and Claiming’ (1980–81) 15 Law and Society Review 631. 5 Galanter (n 3) 61. 6 R Miller and A Sarat, ‘Grievances, Claims and Disputes: Assessing the Adversary Culture’ (1980–81) 15 Law and Society Review 525, 527. 7 See, eg, P Ewick and S Silbey, ‘Conformity, Contestation and Resistance: An Account of Legal Consciousness’ (1991–92) 26 New England Law Review 731; A Sarat, ‘The Law is All Over: Power, Resistance and the Legal Consciousness of the Welfare Poor’ (1990) 2 Yale Journal of Law and the Humanities 343 and D Cowan, ‘Legal Consciousness: Some Observations’ (2004) 67 MLR 928. 8 See, eg, P Atiyah, ‘Tort Law and the Alternatives: Some Anglo-American Alternatives’ (1987) Duke Law Journal 1002; T Tanase, ‘The Management of Disputes: Automobile Accident Compensation in Japan’ (1990) 24 Law and Society Review 651 and R Kagan, Adversarial Legalism: The American Way of Law (Cambridge MA, Harvard U niversity Press, 2001). 9 E Blankenburg, ‘The Infrastructure for Avoiding Civil Litigation: Comparing Cultures of Legal Behaviour in The Netherlands and West Germany’ (1994) 28 Law and Society Review 789.

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define the needs of the consumer of professional services. Generally this leads to a definition that calls for the profession to provide such services.10

However, the extent to which lawyers act as ‘agents of transformation’ depends on their ability and willingness to undertake personal injury claims. This, in turn, depends on the economic attractiveness of personal injury work, as this determines the number of lawyers working in the area, the level of competition for such work and the resources devoted to encouraging claims.

A. 1970s–1980s: The Traditional Model of Legal Services Lawyers’ role as agents of transformation was relatively limited in the early 1970s, when the Pearson Commission estimated that there were approximately 250,000 tort claims for personal injury compensation.11 At this time, few firms of solicitors specialised in the area and so claims tended to be undertaken by generalist solicitors working within high street firms.12 Advertising was not allowed, and so these solicitors waited passively for clients’ instructions, often undertaking personal injury claims simply as an adjunct to more profitable work, such as conveyancing, or wills and probate. Research published in the early 1980s revealed that many people failed to claim compensation to which they may have been entitled, through lack of knowledge and for fear of both the cost and the experience.13 However, rates of claiming were at their highest in the context of employers’ liability (47 per cent of all claims) and road traffic accidents (41 per cent of all claims), partly due to the existence of compulsory insurance in these areas, but also due to the support structures in place to encourage claiming in the early stages of transformation.14 The Oxford survey found that the ‘risk’ of visiting a solicitor was more likely to be taken when an injured person had been convinced, or reassured from other sources, about the strength of her claim, and this was more likely to happen in the work and road contexts, given contact with trade union officials and the police respectively.15 Having consulted a lawyer, the majority went on to claim – and to claim successfully – but the lawyers tended to be involved in the transformation process at a later stage. However, the 1980s saw the increasing specialisation of lawyers in personal injury. Firms, such as Pannone Napier and Leigh Day, were established in the mid-1980s and came to deal increasingly with high-profile class actions. Leading personal injury lawyers of the time liaised with their counterparts in the United States and in 1990 established the Association of Personal Injury Lawyers (APIL)—the UK equivalent of the American Trial Lawyers Association (now the American Association of Justice). The Civil Justice Review estimated

10

Felstiner et al (n 4) 645. Report of the Royal Commission on Compensation for Personal Injury (Pearson Commission) (1978) vol 2, para 59. The estimate relates to 1973 and to the UK as a whole. 12 Exceptions include Thompsons, a trade union firm established in 1908 with a strong social justice ethic: S Allen, Thompsons Solicitors: A Personal History of the Firm and its Founder (London, Merlin Press, 2013). 13 D Harris et al, Compensation and Support for Illness and Injury (Oxford, Clarendon Press, 1984) and H Genn, Hard Bargaining (Oxford, Clarendon Press, 1987). 14 Pearson Commission (n 11). 15 D Harris et al (n 13) 67. 11

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that the number of personal injury claims pursued on the basis of negligence or breach of statutory duty had increased to 340,000 by 1988.16 However, it is during the 1990s that the claims market we recognise today started to emerge, due in no small part to the changing political environment.

B. The 1990s: The Emergence of the Claims Market The election of Margaret Thatcher in 1979 marked a sea change in British politics, involving a shift from consensus to conviction politics rooted in neo-liberalism. Thatcherism extolled the virtues of self-reliance and competitive market forces over state intervention. In the early years, her government privatised previously state-owned utilities, tackled the power of the trade unions and increasingly subjected public services to market principles. By the late 1980s, attention had turned to the restrictive practices of the legal profession, which were said to limit consumer choice, inflate prices and encourage inefficiencies.17 In order to promote competition, the Courts and Legal Services Act 1990 removed the legal profession’s monopoly on conveyancing, by allowing licensed conveyancers, and also extended solicitors’ rights of audience. This deregulation was driven by the philosophy that: free competition between the providers of legal services will, through the discipline of the market, ensure that the public is provided with the most efficient network of legal services at the most economical prices, although the Government also believes that the public must also be assured of the competence of the providers of those services.18

Conveyancing had produced about half of solicitors’ income for much of the twentieth century, and so firms soon needed to diversify into new areas of work, including personal injury, and to compete for that work.19 The impending threat of deregulation had encouraged the Law Society to relax its ban on advertising in 1987, and so the visibility of solicitors’ services increased during this period. However, in the context of personal injury, lawyers were not just competing for work amongst themselves, but also with non-legally qualified claims assessors, who had entered the market in the early 1990s and aggressively recruited clients on a contingency fee basis.20 Whilst there had not been a monopoly on the provision of legal advice in any event, the culture of deregulation and entrepreneurialism contributed to their entry into the market. External competition meant lawyers needed to distinguish their services by holding themselves out as specialists and this, again, increased the need to advertise. In order to attract potential claimants towards solicitors and away from lay

16 Civil Justice Review, Report of the Review Body on Civil Justice (Cm 394, 1988), para 391. The estimate applies to England and Wales only. 17 See generally, R Abel, English Lawyers Between Market and State: The Politics of Professionalism (Oxford, Oxford University Press, 2003). 18 Lord Chancellor’s Department, The Work and Organisation of the Legal Profession, Conveyancing by Authorised Practitioners and Contingency Fees, Cm 570 (London, HMSO, 1989). 19 Abel (n 17) 202. 20 See, generally, Report of the Lord Chancellor’s Committee to Investigate the Activities of Non-Legally Qualified Claims Assessors and Employment Advisors (Blackwell Committee, 2000).

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competitors, the Law Society launched its ‘Accident Line’ referral scheme in 1994, which received 1,600 telephone calls on the first day.21 The mid-1990s saw two important developments, the first relating to funding. Prior to this, those seeking to pursue a claim would apply for legal aid, rely on any trade union funding, or pay themselves. However, the declining commitment to publicly funded legal aid meant that eligibility declined and access to justice issues emerged, particularly for those in the middle income group, who were neither sufficiently poor to qualify for state support, nor sufficiently rich to fund themselves.22 The government looked for market-based solutions and, in 1995, allowed conditional fee (so-called ‘no-win no-fee’) agreements (CFAs) to operate alongside legal aid.23 In successful cases, lawyers working on these arrangements were able to recover their reasonable legal fees, based on an hourly rate, from the losing insurer and charge the claimant a success fee for taking the risk of being paid nothing at all, though subject to a cap to ensure claimants’ damages were not completely eroded. Whilst unsuccessful claimants were not liable to pay their own lawyer for work undertaken, they were liable to pay the other side’s legal costs, and so the insurance industry started to develop ‘after-the-event’ (ATE) legal expenses insurance to protect claimants against this risk. Although lawyers were already reported to be ‘speccing’ (telling clients they need not worry about paying, because they were likely to win and so recover their legal costs from the defendant), the introduction of CFAs expanded the pool of people financially able to claim, and so the number of potential clients. Around the same time, claims assessors were giving way to claims management companies (CMCs). Recognising that there were over 11 million accidents each year, CMCs realised that they could exploit an untapped market by farming claims through mass advertising and referring them on to lawyers, selling products and services to claimants in the process.24 These firms were essentially ‘introducers’, acting as agents between claimants and lawyers. Whilst lawyers were banned by Law Society rules from paying for the referral of claims at this time, these rules were evaded, as CMCs claimed to be charging marketing fees. CMC advertising went beyond raising the public’s consciousness of the availability of compensation for those injured through someone else’s fault, which had largely been the focus until this stage. It also sought to shape people’s legal consciousness and to tackle the issues that historically had prevented people from initiating claims.25 Their advertisements sought to influence social norms and to legitimise claiming, by portraying the claims process as routine and administrative. They also talked of ‘rights’ and ‘entitlements’ and sought to suppress concerns about claiming. They conveyed consumer-friendly images of lawyers to challenge and re-shape preconceived notions of the legal profession, and sought to convey the impression that claiming is quick, easy and stress-free by avoiding images of

21 ‘Injury Plaintiffs Off ’ Law Society Gazette 6 July 1994, 9; ‘Public Swamps Injury Line’ Law Society Gazette 20 July 1994, 5. 22 P Thomas, ‘Thatcher’s Will’ (1992) 19 Journal of Law and Society 1. 23 Conditional Fee Agreements (CFAs) Order 1995. The power to introduce CFAs was provided within s 58, Courts and Legal Services Act 1990. 24 For further information on the claims management industry at this time, see Boleat Consulting, The Claims Standards Council (Department for Constitutional Affairs, 2005). 25 A Morris, ‘Spiralling or Stabilising? The Compensation Culture and Our Propensity to Claim Damages for Personal Injury’ (2007) 70 MLR 349.

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lawyers, judges and court scenes and forgoing complex explanations of the legal criteria for compensation. By implementing free national phone lines, the public were also able to receive anonymous advice on potential claims, thereby removing the fear of dealing with professionals face-to-face. Some advertisements also offered financial or other inducements to claim. The advertising sought to trigger the early stages of the transformation process across large sections of the population, which CMCs and lawyers could then complete when potential claimants made contact.26 By 2000, the personal injury claims landscape had changed significantly, not solely due to policies of economic liberalisation, but with such policies playing a major role. Personal injury claims had become commercially valuable and a visible and active claims market, dedicated to encouraging the injured to claim, was feeding off the tort system. By 2000, information on the number of personal injury claims pursued in England and Wales— whether settled or tried, successful or unsuccessful—became publicly available through the Compensation Recovery Unit (CRU).27 This revealed that the number of claims had doubled in 12 years, from an estimated 340,000 in 1988, to 735,931 claims in 2000/01, although data is unavailable on the pattern of this increase.

C. 2000–05: The Increasing Visibility of the ‘No-win No-fee’ Claims Market The claims market was set to change again at the turn of the millennium. The election of a Labour government in 1997 had marked the end of over 20 years of Conservative rule, but its modernising agenda did not mark the end of deregulation, privatisation and marketisation. In April 2000, Labour continued the state’s withdrawal from public services by abolishing legal aid for the majority of claims, on the assumption that they could be funded through the CFA market instead.28 However, it introduced the concept of recoverability as a corollary, which operated in conjunction with the ‘loser pays’ principle. Unsuccessful claimants paid their own lawyer ‘no-fee’ and used ATE insurance to pay the other side’s legal costs, whilst successful claimants could recover from insurers the success fee payable under the CFA and the cost of their ATE policy in addition to their normal legal costs. In allowing claimants to obtain legal assistance regardless of their financial capacity on a no-win no-fee, no-risk basis, recoverability was ‘an interesting attempt to squeeze public provision into a private model approach’.29 It effectively transferred the costs of claiming from claimants and/or the state to the market or rather, as the majority of personal injury claims are successful, to insurers. Lawyers were permitted to charge success fees of up to 100 per cent of the normal legal costs, which theoretically made CFA work economically very attractive, although

26 For further discussion of the effects of claims advertising, see: Millward Brown, Effects of Advertising in Respect of Compensation Claims for Personal Injuries (Department for Constitutional Affairs, 2006). 27 CRU statistics are published annually in April: www.gov.uk/government/publications/compensationrecovery-unit-performance-data. 28 Access to Justice Act 1999. Legal aid remained available for clinical negligence claims and also for very high-value, complex claims (though usually in conjunction with other sources of funding). 29 R Moorhead, ‘CFAs: A Weightless Reform of Legal Aid?’ (2002) 55 Northern Ireland Legal Quarterly 153.

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r ecoverability was subject to reasonableness. The idea was that the success fee should be commensurate to the risk of losing, and operate on a swings-and-roundabouts basis. Success fees recovered in successful cases would absorb the cost of unsuccessful claims and also help fund other claims until their conclusion. However, firms adopted various business models to cope with the risks posed by CFAs. Some firms subjected claims to detailed riskassessment, whilst others undertook little screening in the hope of a payment, but dropped claims if they became complex or heavily disputed. Others still, focused their attention on particular types of claim. Lawyers reported that the way to make money out of CFAs was to have ‘a regular throughput of small, easy cases’, which generally involve little risk and low investment.30 However, to maintain profitability, such claims are best processed in high volume and so the need to advertise and encourage such claims increased. Advertising (especially national advertising) is expensive and whilst some firms pooled resources and formed advertising networks, such as InjuryLawyers4U, others increased their reliance on CMCs. As a result, the visibility and activity of the claims market increased in the early 2000s, with widespread national and local advertising on prime time television, on radio, in newspapers and on billboards. The market also engaged in direct marketing—cold calling people on their doorsteps, on the street, at hospitals and outside schools. By 2005, it was not uncommon for an injured person to be bombarded with offers of legal assistance, particularly after a road accident.31 However, the availability of CFAs and the increase in the visibility and activity of the market during this time was not matched by an increase in claims. In 2005/06, fewer claims were actually pursued than in 2000/01 (a decrease from 735,931 to 674,422 claims). Claims during this five-year period had fluctuated, rather than increased, and the increases that were seen were largely attributable to the surge of claims prior to the closure of the government-run coal respiratory disease scheme on 31 March 2004. Despite its high profile, the claims market had struggled financially as a result of what has been called the ‘costs war’.32 Unhappy with the introduction of CFA recoverability, insurers challenged claimant lawyers’ success fees and ATE premiums routinely, on the basis that they were unreasonable, which resulted in satellite litigation and a stay on the payment of legal costs in many cases until the appeal courts had resolved the issue. In addition, the business models of the two biggest CMCs, responsible for much of the national advertising, were flawed and both went bust—Claims Direct in 2002 and The Accident Group (TAG) in 2003.

D. 2005–13: The Growth of the Claims Market and the Predominance of Road Traffic Accident Claims However, once the claims market had stabilised, the number of claims did begin to rise. Between 2005/06 and 2012/13, the number of claims increased from 674,422 to 1,048,309—an increase of over 370,000 claims in just seven years. This increase has been linked to further deregulation of legal services. In 2001, the Office of Fair Trading criticised

30 T Goriely, R Moorhead and P Abrams, More Civil Justice? The Impact of the Woolf Reforms on Pre-Action Behaviour (Law Society/Civil Justice Council, 2002). 31 M Day, ‘Time to End the Rich Pickings from Claims Lawyers and Insurers’ The Times, 1 November 2005. 32 S Kalish, ‘The English Costs War, 2000–2003, and a Moment of Repose’ (2004) 83 Nebraska Law Review 114.

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restrictive practices still adopted by the legal profession.33 In the interests of competition, it recommended that the Law Society should lift its ban on payments for the referral of claims, which it eventually did in 2004.34 As noted above, the ban had been widely flouted in any event and so, in many respects, the Law Society’s move simply legitimised business arrangements that were already in place. However, the lifting of the ban coincided with the significant growth of the claims management industry. In the early 2000s, an estimated 500 CMCs were working in the personal injury sector, but by 2007 this number had almost tripled and by 2011/12 there were just below 2,500 such companies.35 In the same five-year period, the CMC industry’s annual turnover had increased substantially from £229 million to £455.5 million.36 The market in claims had become big business, with lawyers commonly paying between £600 and £900 for each referral.37 The potential to attract such fees inevitably incentivised the market to increase its efforts to encourage claims so that they could be sold on to lawyers. The proportion of personal injury businesses reaching lawyers directly, rather than through introducers, fell between 2000 and 2010.38 By 2012, it was reported that over three-quarters of the population had been contacted about claiming.39 In 2007, Labour had introduced claims-management regulation in order to curb its worst practices.40 CMCs had to be authorised and, once authorised, to comply with a code of conduct which prohibited cold calling in person, high-pressure selling or the offering financial or other inducements to claim. However, the market was sophisticated and quick to adapt. It found loopholes in the code which allowed them to continue to offer financial and other inducements. In addition, whilst CMCs generally stopped cold calling in person, there was a growth of cold calling by phone, with specialist companies operating through call centres at the end of long supply chains. There was also an increase in the sending of unsolicited text messages.41 In summary, government policy on the liberalisation of legal services and the commercialisation of funding, combined with the relaxation of rules on advertising, encouraged the commodification of claims, the growth of a claims market and a corresponding increase in claims. It should be noted that the availability of before-the-event legal expenses insurance also increased during this period.42 Whilst other socio-economic factors may well have contributed to the increase in claims, including the recession from 2008 onwards, personal injury is relatively distinct as compared with other potentially justiciable p roblems.

33 Office of Fair Trading, Competition in Professions: A Report by the Director General of Fair Trading (OFT 328, 2001). 34 For further discussion of referral fees, see A Higgins, ‘Referral Fees—the Business of Access to Justice’ (2012) 32 Legal Studies 109. 35 References to the number of CMCs throughout the chapter relate to those working in the personal injury sector, rather than to the total number. 36 M Boleat, Claims Management Regulation: Impact of Regulation, Third Year Assessment (Ministry of Justice, 2010) and Ministry of Justice, Claims Management Regulation Annual Report 2011–2012 (2012). 37 Lord Justice Jackson, Review of Civil Litigation Costs: Final Report (2010) para 3.18. 38 Charles River Associates, Cost Benefit Analysis of Policy Options Related to Referral Fees in Legal Services (2010). 39 Association of British Insurers (ABI) news release, ‘Three in Four Adults Encouraged to Claim Compensation’, 19 June 2012. 40 Compensation Act 2006, Pt 2. 41 Boleat (n 36). 42 RIAD International Association of Legal Expenses Insurance, The Legal Protection Insurance Market in Europe (2010).

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For example, a survey of the public’s engagement with the civil justice system found that respondents: were least likely to believe that nothing could be done to resolve personal injury problems, perhaps reflecting the proliferation of advertising of no-win no-fee personal injury claims services.43

In addition, levels of advice-seeking are said to be associated with problem characterisation and personal injury (alongside divorce) is now most commonly characterised as a ‘legal’ issue.44 This stands in stark contrast to the position in the 1970s and early 1980s, when the traditional model of legal service delivery predominated. However, it is important to appreciate that the market has not been interested in all claims alike. As noted above, lawyers, especially those working on CFAs, are particularly attracted to quick, easy claims, and road traffic accident (RTA) claims fit this profile.45 Not only do they have a high rate of success, so that the risk of ‘no-fee’ is very low, but their legal and factual simplicity means that they require only low investment and they are resolved quickly, thereby minimising problems with cash flow. This increased the incentive for lawyers and CMCs to invest in generating RTA claims and to deal with them in volume, and so the market has been even more proactive in relation to RTAs. Those involved in RTAs were very likely to be contacted by a CMC and/or lawyer soon after the accident and encouraged to claim. This is because it was easier for the claims market to discover who had been involved in an RTA. Garages, breakdown companies and those involved in providing replacement vehicles sold on to CMCs the details of those who had suffered damage.46 Some CMCs also engaged in data-mining, by recovering the names and addresses of people referred to CMCs but who did not claim at the time. They also obtained data from insurance comparison websites to pick up details of those who declared that they had been involved in an accident in the previous three years.47 Surprisingly, lawyers also received details of potential claimants from liability insurers. Whilst insurers expressed concern that the payment of referral fees added to the cost of resolving claims, some decided to reduce their costs by selling on details of non-fault motorists who informed them of an accident on their policy.48 Indeed, some insurers downloaded their data to telesales companies, who contacted those involved in accidents to ascertain whether they were injured.49 ‘Third party capture’ may also have contributed to the upward trend in claims as, from about 2005, insurers increasingly made direct contact with those injured by their policyholders and offered them a settlement before they engaged legal advice.50 The system of encouraging people to claim after an RTA, therefore,

43 P Pleasance, N Balmer and A Buck, Causes of Action: Civil Law and Social Justice (London, HMSO, 2004). See also, H Genn, Paths to Justice: What People Do and Think about Going to Law (Oxford, Hart Publishing, 1999). 44 P Pleasance and N Balmer, ‘Horses for Courses? People’s Characterisation of Justiciable Problems and the Use of Lawyers’ in Legal Services Board, The Future of Legal Services: Emerging Thinking (2010). 45 R Lewis and A Morris, ‘Tort Law Culture: Image and Reality’ (2012) 39 Journal of Law and Society 562. 46 Ministry of Justice (n 36). 47 A Ellis, ‘Is Data Mining a Major Factor in the Personal Injury Claims Spike?’ Post Magazine, 1 November 2011. 48 J Straw, ‘Dirty Secret that Drives up Motor Insurance; Companies are Selling Drivers’ Details to Claims Firms Exploiting No-win No-fee System’ The Times, 27 June 2011. 49 Ellis (n 47). 50 Financial Services Authority, Third Party Capture—What You Need to Consider: www.fsa.gov.uk/pubs/other/ third_party_capture.pdf.

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became highly institutionalised and efficient when compared to other accidents. The result is that the overall increase in claims since 2005/06 is largely attributable to an increase in RTA claims. There were 460,097 RTA claims in 2005/06, as compared with 828,487 such claims in 2011/12. RTA claims more or less doubled after 2000 and came to dominate the tort system, constituting 80 per cent of all claims. This increase occurred despite the fact that the number of casualties reported to the police was falling during the same period: only 222,146 road casualties were reported in 2009, less than a third of the number of claims pursued that year.51 It seems that this increase was largely attributable to an increase in whiplash claims, which have been reported to constitute at least 70 per cent of all RTA claims.52 As Table 1 below indicates, the number of personal injury claims increased across all areas from the 1970s onwards, but since 2000 the picture has been mixed. Table 1: Number of Personal Injury Claims Pursued, 1973–2012/13 Year

Total53

Employers’ Liability

Public Liability

Road Traffic Accident

700

117,600