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Contract Codification in
Australia: Is It Necessary,
Desirable and Possible?
Warren Swain
Abstract
In early 2012, the then Attorney-General published a discussion paper on
codifying Australian contract law. This article examines whether such a course
of action is necessary, desirable and possible. It concludes that many of the
problems that are identified in the discussion paper can be more easily dealt
with in other ways. A degree of scepticism is expressed about the desirability of
codification. Some drawbacks are identified. The experience of codification in
other jurisdictions suggests that codification will be possible. The process of
producing a code will nevertheless be extremely difficult. This article concludes
that, if the Australian Government is going to go down the route of a contract
code, it should proceed with great caution.
I Law Codes Ancient and Modern
In regard to the proposed Code generally, I must avow myself decidedly
opposed to all codes. The laws owe much to the reverence which their
antiquity inspires; and where, as in our case, they have in a succession of ages
been adapted to the free institutions of the country, it were rash, as the Code
proposes, to abolish them all by one declaration, and establish a new law. Time
mellows and indeed forms laws.
1
These were the words of Edward Sugden, a future Lord Chancellor, writing in the
1820s in response to a proposal of James Humphreys for a code of English real
property law.^2 Sugden also described the proposed code as a ‘calamity’.^3 Some
will view the idea of codifying Australian contract law in much the same light.
Down the centuries, the stock argument of opponents of codification is that, even
with its many imperfections, the existing system is preferable to the codified
alternative.^4 Others will see codification as not merely an opportunity to clarify the
∗ (^) Associate Professor, T C Beirne School of Law, University of Queensland. I am grateful to the
anonymous reviewers for their helpful comments. Any errors remain my own. (^1) Edward Burtenshaw Sugden, A Letter to James Humphreys, Esq: On His Proposal to Repeal the
Laws of Real Property and Substitute a New Code (J & W T Clarke , 2nd^ ed, 1826) 5. (^2) For details of the proposed legislation, see Bernard Rudden, ‘A Code Too Soon. The 1826 Property
Code of James Humphreys: English Rejection, American Reception, English Acceptance’ in Peter Wallington and Robert M Merkin (eds), Essays in Memory of F H Lawson (Butterworths, 1986) 101. (^3) Ibid 102. (^4) For distinguished support for this view of codification, see Peter Birks, ‘Equity in the Modern Law:
An Exercise in Taxonomy’ (1996) 26 University of Western Australia Law Review 1, 99;
132 SYDNEY LAW REVIEW [VOL 36:
existing law, but also to change it. In March 2012, then Attorney-General Nicola
Roxon announced the publication of A Discussion Paper to Explore the Scope for
Reforming Australian Contract Law ,
5 admitting that the proposal to codify contract
law would be controversial: ‘I expect there to be both passionate reformers and
trenchant defenders of the status quo.’
6 Following a change of government, it
seems unlikely that a decision on contract codification will be taken any time soon.
Now is therefore a very good time to take stock and consider whether contract
codification in Australia is necessary, desirable and possible.
Enthusiastic neologist
7 Jeremy Bentham invented the word ‘codification’,
8
but the idea of a law code is very much older.^9 In the ancient world, law codes
could be found across the Middle East and Asia.
10 The Romans were enthusiastic
codifiers.
11 The first modern wave of codification began in the 18
th century, in part
inspired by the natural law movement.
12 The 19
th century, which began with the
French Code Civile and ended with the German Bürgerliches Gesetzbuch (‘BGB’),
was undoubtedly a golden age of codification.
13 Codification was regarded as not
just intellectually attractive, but as an important element in nation building.^14 So
popular did codification become that, by 1900, the majority of European states
Sir Guenter Treitel, Some Landmarks of Twentieth Century Contract Law (Oxford University Press,
(^5) Attorney-General’s Department (Cth), Improving Australia’s Law and Justice Framework:
A Discussion Paper Exploring the Scope for Reforming Australian Contract Law (2012) <http://www.ag.gov.au/Consultations/Documents/ReviewofAustraliancontractlaw/Discussionpaper ImprovingAustraliaslawandjusticeframeworkAdiscussionpaperexploringthescopeforreformingAustr aliancontractlaw.pdf> (‘ Discussion Paper ’). (^6) Nicola Roxon, ‘Time for the Great Contract Reform’, The Australian (online), 23 March 2012,
<http://www.theaustralian.com.au/business/legal-affairs/time-for-the-great-contract-reform/story- e6frg97x-1226307655474#>. See Attorney-General’s Department, above n 5, i, for a similar statement. (^7) The Bentham Project at University College London has drawn up a list of words invented by
Jeremy Bentham: UCL Bentham Project, Neologisms of Jeremy Bentham <http://www.ucl.ac.uk/ Bentham-Project/tools/neologisms>. (^8) See Jeremy Bentham, Papers Relative to Codification and Public Instruction (J McCreery, 1817).
Bentham had already used the term in a letter to his brother Samuel Bentham dated 20 August 1806 in J R Dinwiddy (ed), The Collected Work of Jeremy Bentham, The Correspondence Volume 7: January 1802 to December 1808 (Clarendon, 1988) 368. (^9) Code is derived from the word ‘codex’, used to describe the ancestor of the modern book: Colin H
Roberts and T C Skeat, The Birth of the Codex (Oxford University Press, 2004) 1. (^10) A selection of the earliest can be found in Law Collections from Mesopotamia and Asia Minor
(Martha T Roth trans, Scholars Press, 2nd^ ed, 1997); The Law Code of Manu (Patrick Olivelle trans, Oxford University Press, 2004); Dharmasūtras: The Law Codes of Ancient India (Patrick Olivelle trans, Oxford University Press, 2009). (^11) Justinian’s Code is perhaps the best known. The codes of Gregorius, Hermogenianus and
Theodosius were also significant undertakings: see H F Jolowicz, A Historical Introduction to the Study of Roman Law (Cambridge University Press, 1952) 482–4, 489, 503–6. (^12) Franz Wieacker, A History of Private Law in Europe (Tony Weir trans, Oxford University Press,
- 257–75; Horst Klaus Lücke, ‘The European Natural Law Codes: the Age of Reason and the Powers of Government’ (2012) 31 University of Queensland Law Journal 7. (^13) For the background to these two codes, see Michael John, Politics and the Law in Late Nineteenth-
Century Germany: The Origins of the Civil Code (Clarendon, 1989); Wieacker, above n 12, 269–73. (^14) Reinhard Zimmermann, ‘Codification: History and Present Significance of an Idea’ (1995) 1
European Review of Private Law 95, 100–1.
134 SYDNEY LAW REVIEW [VOL 36:
bringing about reform, even if the will had been there.
23 Attitudes may be shifting.
The last decade has seen greater interest in codification in Europe than at any time
since the 19
th century. This may have had some influence. A number of more
specifically Australian reasons to support codification of the law of contract were
identified in the Discussion Paper. Some are more convincing than others.
II Is a Contract Code Necessary?
The High Court of Australia recently stressed that the common law is uniform
across all states and territories. This means that intermediate appellate courts and
trial judges should not depart from the decisions of courts in other jurisdictions.
24
In theory, this ought to lead to consistent application of the common law.^25
Legislation is another matter. In many cases the solutions adopted in and
across the states and territories are very similar,^26 which is not to say that even
minor differences cannot create complexity and uncertainty.
27 The significant
variations in substance that exist are more serious. Western Australia, Queensland
and the Northern Territory have all enacted legislation that has abrogated the
common law doctrine of privity of contract.^28 In other states, the common law
continues to apply. Within these jurisdictions it is necessary to utilise one of the
established common law methods of avoiding privity or one of the specific
statutory exceptions.
29 Generally, either of these routes allows a third party to
enforce a contract made for their benefit. Judges have nevertheless expressed
dissatisfaction with the privity doctrine.
30 Not only is it untidy, it runs the risk that
novel situations will arise where the parties’ intentions will not be fulfilled. There
are other legislative differences. Only New South Wales has enacted
comprehensive legislation on minors.^31 Other states and territories rely on a
mixture of statute and common law.
32 New South Wales, Victoria and South
(^23) Michael Tilbury, ‘The History of Law Reform in Australia’ in Brian Opeskin and David Weisbrot
(eds), The Promise of Law Reform (Federation Press, 2005) 3, 17. (^24) Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151–2. (^25) Keith Mason has described this as a process of ‘tightening of the screws’: see Keith Mason, ‘Do
Top-down and Bottom-up Reasoning Ever Meet?’ in Elise Bant and Matthew Harding (eds), Exploring Private Law (Cambridge University Press, 2010) 19, 20. (^26) Andrew Stewart, ‘What’s Wrong with the Australian Law of Contract?’ (2012) 29 Journal of
Contract Law 74, 78. (^27) For example the various Sale of Goods Acts: Sale of Goods Act 1895 (SA); Sale of Goods Act 1895
(WA); Sale of Goods Act 1896 (Qld); Sale of Goods Act 1896 (Tas); Sale of Goods Act 1923 (NSW); Sale of Goods Act 1954 (ACT); Goods Act 1958 (Vic); Sale of Goods Act 1972 (NT). (^28) Property Law Act 1969 (WA) s 11; Property Law Act 1974 (Qld) s 55; Law of Property Act 2000
(NT) s 56. (^29) See, eg, Insurance Contracts Act 1984 (Cth) s 48. (^30) Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 123 (Mason CJ
and Wilson J), 168 (Toohey J). The decision concerned insurance contracts but the criticism of privity has also been applied more widely: Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170, 177–8; Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257, 266–7. (^31) Minors (Property and Contracts) Act 1970 (NSW). (^32) Stewart, above n 26, 78. For example, Queensland is governed by a combination of the Law Reform
Act 1995 (Qld) and the common law.
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Australia have statutes dealing with the consequences of a frustrated contract.
33 In
other states the common law still applies. None of these are peripheral matters.
Privity and frustration, in particular, are open to criticism, not just on the grounds
of inconsistency between states, but as bad law.^34 It is not too difficult to mount a
federalist defence of this position.
35 All the same, it has to be acknowledged that
recent decades have seen centralisation in some areas.
36 National legislation has a
mixed track record of success.
37 The Australian Consumer Law (‘ACL’) was only
introduced indirectly.^38 While not entirely satisfactory,^39 the ACL at least shows
that within a given area, complex national law-making is feasible. There are
several examples of Commonwealth legislation of contract law.^40 There is
something to be said for the domestic harmonisation of contract law. The present
system increases uncertainty and transaction costs. Reform on these grounds is
widely supported
41 by legal,
42 business
43 and academic respondents to the
Discussion Paper.^44 A code would be one solution. Legislative harmonisation
would provide another route. There are practical problems with this approach. It is
(^33) Frustrated Contracts Act 1978 (NSW); Frustrated Contracts Act 1988 (SA); Australian Consumer
Law and Fair Trading Act 2012 (Vic). For an account of the various pieces of legislation, see Andrew Stewart and J W Carter, ‘Frustrated Contracts and Statutory Adjustment: the Case for a Reappraisal’ (1992) 51 Cambridge Law Journal 66, 82–4. The legislation does not apply to all contracts and can be excluded by the parties: Frustrated Contracts Act 1978 (NSW) s 6; Frustrated Contracts Act 1988 (SA) ss 4(1)(b), 4(2); Australian Consumer Law and Fair Trading Act 2012 (Vic) s 35(3). (^34) Privity has been criticised for a very long time: Arthur Corbin, ‘Contracts for the Benefit of Third
Persons’ (1930) 46 Law Quarterly Review 12; H C Gutteridge, ‘Contract and Commercial Law’ (1935) 51 Law Quarterly Review 91, 98. The main difficulty with frustration is not so much when a contract is frustrated but the consequences of that event, especially where money was paid or performance rendered. It is, however, fair to say that frustration has not generated much reported litigation. (^35) For a discussion of the federalist ideal, see Nicholas Aroney, The Constitution of a Federal
Commonwealth: The Making and Meaning of the Australian Constitution (Cambridge University Press, 2009). (^36) Nicholas Aroney, Scott Prasser and Alison Taylor, ‘Federal Diversity in Australia: a Counter-
Narrative’ in Gabrielle Appleby, Nicholas Aroney and Thomas John (eds), The Future of Australian Federalism: Comparative and Interdisciplinary Perspectives (Cambridge University Press, 2012) 272, 291–8. (^37) Reform of company law is perhaps the most glaring example: New South Wales v Commonwealth
of Australia (1990) 169 CLR 482. I am grateful to Professor Ross Grantham for drawing this incident to my attention. (^38) Through the Competition and Consumer Act 2010 (Cth). (^39) For a convincing argument that the ACL lacks balance and that in some respects it is weighted in
favour of business see J W Carter, ‘The Commercial Side of Australian Consumer Protection Law’ (2010) 26 Journal of Contract Law 221. There are other fundamental problems with the ACL, including the definition of ‘consumer’: see Aviva Freilich and Lynden Griggs, ‘Just Who is the Consumer? Policy Rationales and a Proposal for Change’ in Justin Malbon and Luke Nottage (eds), Consumer Law and Policy in Australia and New Zealand (Federation Press, 2013) ch 2. (^40) Bills of Exchange Act 1909 (Cth); Insurance Contracts Act 1984 (Cth). This legislation is mandated
by the Australian Constitution s 51 (xiv), (xvi). (^41) Responses to the Discussion Paper are collected at: Attorney-General’s Department, Submissions
to the Review of Australian Contract Law : <http://www.ag.gov.au/Consultations/Pages/ SubmissionstotheReviewofAustralianContractLaw.aspx> (‘ Responses ’). Submissions are identified by author. (^42) The Law Society of New South Wales Young Lawyers, Responses , above n 41. (^43) Master Builders Australia; Real Estate Institute of Australia; Civil Contractors Federation; Consult
Australia, Responses , above n 41. (^44) Australian Academy of Law, Responses , above n 41.
2014] CONTRACT CODIFICATION IN AUSTRALIA 137
Convention.
54 It may even fit commercial expectations better than sales law in the
English and Australian tradition.
55 The CISG is not mandatory and, in this way, it
reflects the traditional autonomy given to contractual parties. Anecdotal evidence
suggests that the CISG is often excluded in Australia.^56 Even when the CISG is not
excluded, it is often poorly applied by the Australian courts.
57
Opt-in provisions also promote harmonisation. The parties are perfectly at
liberty to choose to have their contract governed by the law of a particular
jurisdiction^58 or the UNIDROIT Principles of International Commercial Contracts
(‘UPICC’).
59 UPICC has several advantages for commercial parties. Once the
parties opt in, with the exception of a few mandatory principles, the other
principles can be excluded or modified in whole or in part.
60 Practices and usage of
the parties are also accounted for.
61 The merit of UPICC has been recognised in
Australia both on its own terms,
62 and as a possible model for reforming Australian
contract law.^63 But as with the CISG, practitioners remain wary.^64
International rules can certainly work. The carriage of goods by sea is a
good example. Australia is a party to the Hague-Visby Rules 1968,^65 albeit as
modified by legislation.
66 Yet, even here, complete uniformity has not proved
possible. The Hamburg Rules 1978 and the Rotterdam Rules 2008 are not adopted
(^54) Not every type of sale of goods is covered: see CISG arts 2, 3. (^55) Luke 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. (^56) Ibid 836; Attorney-General’s Department, above n 5, 15 [5.4]; 17 [5.11]. For anecdotal evidence, see
Bruno Zeller; Warren Swain and Nick Gaskell, Responses , above n 41; Lisa 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. (^57) Spagnolo, above n 56, 167–207. (^58) The recent Oxford Civil Justice Survey suggests that England, Switzerland, Germany and the
United States were the most popular choices for cross-border transactions: Oxford Institute of European and Comparative Law and the Oxford Centre for Socio-Legal-Studies, Civil Justice Systems in Europe: Implications for Choice of Forum and Choice of Contract Law A Business Survey — Final Results <http://denning.law.ox.ac.uk/iecl/pdfs/Oxford%20Civil%20Justice% 20Survey%20-%20Summary%20of%20Results,%20Final.pdf>. (^59) 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 Michael Furmston, ‘English View of the UNIDROIT Principles of International Commercial Contracts’ (1998) 3 Uniform Law Review 419. (^60) UPICC 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 — eg through exclusion clauses, liquidated damages clauses, entire agreement clauses, contractual rights to terminate, and interpretation clauses. (^61) Ibid art 1.9. (^62) Paul Finn, ‘Symposium Paper: The UNIDROIT Principles: An Australian Perspective’ (2010)
17 Australian International Law Journal 193, 196. (^63) Luke Nottage, ‘Symposium Paper: Afterthoughts: International Commercial Contracts and
Arbitration’ (2010) 17 Australian International Law Journal 197, 204. (^64) Attorney-General’s Department, above n 5, 17 [5.11]. (^65) International Convention for the Unification of Certain Rules of Law relating to Bills of Lading ,
opened for signature 25 August 1924, 120 LNTS 187 (entered into force 2 June 1931) as amended by the Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading , opened for signature 23 February 1968, 1412 UNTS 127 (entered into force 23 June 1977). (^66) Carriage of Goods by Sea Act 1991 (Cth). For details, see Martin Davies and Anthony Dickey,
Shipping Law (Lawbook Co, 3rd^ ed, 2004) 169–76.
138 SYDNEY LAW REVIEW [VOL 36:
in Australia.
67 A full empirical investigation is needed to determine the extent to
which Australian business opts in or out of international instruments and why this
is so. A large-scale study in the United States suggests that both the CISG and
UPICC are also under-utilised there.^68 On the current evidence, those commercial
parties who might be thought to most favour a harmonised international contract
code are not even enthusiastic for more limited internationalisation. If the needs of
business are one of the motivations for codification then, rather than imposing a
contract code, it is preferable to encourage greater use of the CISG and UPICC
where they apply.
69
The Discussion Paper highlights the need to ensure that Australian contract
law ‘adapts to innovations in technology’.
70 Electronic communications fit
uneasily with established contract law. The rules relating to contract formation are
the best example.
71 Electronic transactions in Australia are governed by the various
Electronic Transactions Acts.^72 In most states and territories, these were recently
updated in line with the United Nations Convention on the Use of Electronic
Communications in International Contracts , 2005.^73 Some significant questions
remain to be settled, including the point at which an electronic acceptance becomes
effective.
74 Contract law lies at the heart of e-commerce.
75 Analogies can certainly
be drawn between the old rules of contract formation and electronic
communications.^76 This approach has been criticised^77 but is not necessarily
(^67) Convention on the Carriage of Goods by Sea, opened for signature 31 March 1978, 1695 UNTS 3
(entered into force 1 November 1992); Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea , opened for signature 11 December 2008, A/RES/63/122. (^68) Peter L 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) 27 Journal of Law and Commerce 1. (^69) Donald Robertson, ‘The International Harmonisation of Australian Contract Law’ (2012)
29 Journal of Contract Law 1. For further practical and legal difficulties for Australian parties and lawyers involved in cross-border contracting see Dr Luke Nottage; Professor Mary Keyes, Responses , above n 41. (^70) Attorney-General’s Department, above n 5, 4 [2.7]. (^71) Donal Nolan, ‘Offer and Acceptance in the Electronic Age’ in Andrew Burrows and Edwin Peel
(eds), Contract Formation and Parties (Oxford University Press, 2010) 61. (^72) This legislation is based on the UNCITRAL Model Law on Electronic Commerce 1996: Electronic
Transactions Act 1999 (Cth); Electronic Transactions Act 2000 (NSW); Electronic Transactions Act 2000 (Tas); Electronic Transactions (Northern Territory) Act 2000 (NT); Electronic Transactions Act 2000 (SA); Electronic Transactions (Victoria) Act 2000 (Vic); Electronic Transactions (Queensland) Act 2001 (Qld); Electronic Transactions Act 2003 (WA). (^73) Opened for signature 16 January 2006, UN Doc A/60/515 (entered into force 1 March 2013).
Queensland is likely to update its legislation in the near future. I am grateful to my colleague, Dr Alan Davidson, for this information. (^74) Alan Davidson, The Law of Electronic Commerce (Cambridge University Press, 2009) 60; Eliza
Mik, ‘Updating the Electronic Transactions Act?’ (2010) 26 Journal of Contract Law 184, 197. (^75) Michael Furmston and G J Tolhurst, Contract Formation Law and Practice (Oxford University
Press, 2010) 6.01. (^76) Olivaylle Pty Ltd v Flottweg AG (No 4) 255 (2009) ALR 632, 642 [25]. (^77) Simone Hill, ‘Flogging a Dead Horse — the Postal Acceptance Rule and Email’ (2001) 17 Journal
of Contract Law 151.
140 SYDNEY LAW REVIEW [VOL 36:
Paper , ‘greater accessibility’
87 not only has intrinsic value but would also ensure
that contract law was better able to ‘set acceptable standards of conduct’.
88
Whether or not the law of contract is really an effective mechanism for setting
acceptable standards of conduct is a complex issue.^89 It is asking rather a lot,
within the confines of a code, to lay down some community standard of fairness
that reflects ‘the needs of different people from different cultural backgrounds or
experiencing different cultures’.
90
Even supposing the law of contract were rendered accessible by a code, this
would be unlikely to alter the process of contracting very much. The average
consumer is rarely in a position to negotiate rather than accept standard terms.^91
The fact that a code ensures that the rules relating to remedies for breach of
contract are accessible does little to lessen the fact that that they are difficult and
expensive to pursue in practice.
92 Small- and medium-sized businesses are
sometimes at a disadvantage when contracting as well.^93 They do not have the
same access to legal advice as large corporations.
94 Small businesses may be more
familiar with the rudimentary features of contract law than consumers and, as such,
a code may make it easier for them to know where they stand and organise their
dealings.
95 There are still limits to what a code can do.
96 Smaller businesses may
often have no better, or not much better, negotiating strength or resources than
consumers. Contract law may not even be the dominant factor and certainly not the
only factor in determining how businesses behave. Commercial reputation and the
preservation of longstanding relationships may matter much more.^97 Contracts are
(^87) Attorney-General’s Department, above n 5, 3 [2.2]. (^88) Ibid 4 [2.5]. (^89) There may be something in the view that it has a deterrent effect: Eric A Posner, Law and Social
Norms (Harvard University Press, 2002) 148–68. (^90) Attorney-General’s Department, above n 5, [2.5]. This is different from the entirely legitimate
concern that culture and language may create vulnerabilities in contracting: ALRC, Multiculturalism and the Law , Report No 57 (1992). (^91) For a recent perspective, see Omri Ben-Shahar (ed), Boilerplate (Cambridge University Press, 2007). (^92) This is a perennial problem in consumer law. For some recent research on this issue in England, see
Office of Fair Trading, Consumer Law and Business Practice: Drivers of Compliance and Non- Compliance (Office of Fair Trading, 2010) <http://www.oft.gov.uk/shared_oft/reports/Evaluating- OFTs-work/OFT1225.pdf>. (^93) The courts are well aware of this, as illustrated by the way in which the doctrine of economic
duress is applied: Andrew Stewart, ‘Economic Duress — Legal Regulation of Commercial Pressure’ (1983–84) 14 Melbourne University Law Review 410. For a particularly clear example, see Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833. (^94) Some of the submissions on the Discussion Paper support this view. The response of the Small
Business Development Corporation is particularly valuable because it includes a survey of small businesses in Western Australia: Small Business Development Corporation, Responses , above n 41. (^95) Attorney-General’s Department, above n 5, 5 [2.8]. (^96) The idea that a simplified contract law will reduce market dominance by large companies seems
rather optimistic. This suggestion was made by the Shadow Attorney-General of New South Wales, Paul Lynch MP, Responses , above n 41. (^97) See Stewart Macaulay, ‘Non-Contractual Relations and Business: A Preliminary Study’ (1963) 28
American Sociological Review 55. For an exploration of these themes, see Jean Braucher, John Kidwell and William C Whitford (eds), Revisiting the Contracts Scholarship of Stewart Macaulay (Hart, 2013).
2014] CONTRACT CODIFICATION IN AUSTRALIA 141
frequently the product of a complex mixture of factors rather than one-off events.
98
The suggestion that the existence of a contract code can have much impact on the
operation of these relationships may be rather naïve.
The Discussion Paper speaks of the merits of improving certainty in
contract law. The aim is laudable, but there are at least two problems. Even
supposing a code could be drawn up that was simple enough for most people
without legal training to understand, any code would still have to be interpreted by
judges. This will not be an easy adjustment for judges schooled in the common law
tradition.
99 There are also bound to be gaps in a code.
100 Some existing civil codes
expressly prevent judicial innovation. Article 5 of the Code Civile is unequivocal.
It states that: ‘Judges are forbidden to decide the cases submitted to them by laying
down general rules.’ But even French judges have refused to confine themselves to
the role of interpreter.
101 German judges have also taken advantage of the general
clauses on public policy and good faith in order to innovate.^102 Faced with a new
code of contract law, judges will do one of two things. They will seek to interpret
the code and fill the gaps by drawing on their knowledge of the old common law of
contract,
103 or, and this is less likely, they will genuinely start from scratch.
104
Neither approach is necessarily conducive to the creation of certainty. Initially a
new code may generate more uncertainty than it avoids, as litigants test its
boundaries.^105 Codification is unlikely to be cost-free for business, as standard
forms will have to be redrafted.
106
A second problem is more subtle. Legal uncertainty is a fact of life even in
commercial law. Parties are adept at finding ways around it. Faced with a default
rule in contract that is uncertain, commercial parties are likely to include an
express provision in the contract.
107 There is no reason why certainty should
(^98) For an important selection of literature on the relational theory of contracts, see David Campbell
(ed), Ian Macneil, The Relational Theory of Contract: Selected Works of Ian Macneil (Sweet & Maxwell, 2001). (^99) Richard A Posner, How Judges Think (Harvard University Press, 2008) 145. (^100) This has been the experience in the Code Civile : see Eva Steiner, French Legal Method (Oxford
University Press, 2002) 39. (^101) Ibid. (^102) Basil S Markesinis, Hannes Unberath and Angus Johnston, The German Law of Contract: A
Comparative Treatise (Hart, 2nd^ ed, 2006) 131–3, noting however that good faith does not allow the courts to reopen every contract and examine whether it is fair. (^103) There are a numerous examples of judges referring to the pre-code law; these include judges in
India after the Indian Contracts Act 1872 , in Germany after the BGB and in England post the Law of Property Act 1925 (UK) 15 and 16 Geo 5, c 20 which was supposed to redraw the landscape of real property. (^104) For some of the problems facing judges in the context of gaps in Louisiana, a mixed legal system,
see James L Dennis, ‘Interpretation and Application of the Civil Code and the Evaluation of Judicial Precedent’ (1993) 54 Louisiana Law Review 1. (^105) A good example is provided by the Bill of Sale Act 1878 (UK) 41 and 42 Vic, c 31: see E Cooper
Willis, ‘Observations on the working of the Bills of Sale Act 1878 , Amendment Act 1882 ’ (1887) 3 Law Quarterly Review 300. I am grateful to Ms Karen Fairweather for drawing the example to my attention. The Insurance Contracts Act 1984 (Cth) provides a more recent Australian example: see Malcolm Clarke, ‘Doubts from the Dark Side — the Case against Codes’ [2001] Journal of Business Law 605, 610. (^106) The Australian Chamber of Commerce and Industry made this point in its submission, Australian
Chamber of Commerce and Industry, Responses , above n 41. (^107) Iain MacNeil, ‘Uncertainty in Commercial Law’ (2009) 13 Edinburgh Law Review 68, 75.
2014] CONTRACT CODIFICATION IN AUSTRALIA 143
contract codification gives cause for pessimism. A joint initiative by the English
and Scottish Law Commissions produced an elegant code,
119 but it proved
impossible to reach a consensus between the two bodies and the code remains no
more than a proposal.^120 Recent European examples also suggest that codifying
contract law will be a time-consuming process. The Commission on European
Contract Law (‘Lando Commission’) was founded in 1982. It produced the
Principles of European Contract Law (‘PECL’) in three parts. The first did not
appear until 1995 and the last in 2003.^121 The Study Group on a European Civil
Code was formed in 1998. Even with PECL as the foundation of the contract
segment, a Draft Common Frame of Reference was not published until 2009.^122
Because the common law is the same across Australia, the differences
between states are much smaller than those between European countries.
123 Any
differences are the product of legislation. Even if the current situation is not ideal,
a stronger case would need to be made for a full-scale code. It is difficult to make
such a case on the basis of harmonisation alone. A code might also be used to
reform the law of contract.
The immediate hurdle faced by any would-be codifier of Australian contract
law is the decision as to what to include and what to leave out. There may not even
be a consensus on what is encompassed by Australian contract law.
124 Reforming
contract law in isolation is also likely to prove unsatisfactory. There are too many
troublesome boundaries with other legal categories.
125 The law of tort presents the
most obvious,^126 but not the only, problem.^127 The content of the code will largely
depend on whether the code is seen as a restatement of the existing law or as an
opportunity to bring about more profound change. There is some academic support
for treating the code as an opportunity to reform the law of contract. If this view
prevails, some well-established doctrines are likely to come under scrutiny.
(^119) The code was drawn up by Harvey McGregor QC: Harvey McGregor, Contract Code Drawn up on
Behalf of the English Law Commission (Guiffré, 1993). (^120) Hector MacQueen, ‘Glory with Gloag or the Stake with Stair? T B Smith and the Scots Law of
Contract’ in Elspeth Reid and David Carey Miller (eds), A Mixed Legal System in Transition: TB Smith and the Progress of Scots Law (Edinburgh University Press, 2005) 138, 159–61. For accounts of these events from both sides, see L C B Gower, ‘Reflections on Law Reform’ (1973) 23 University of Toronto Law Journal 257, 264–5; T B Smith, ‘Law Reform in a Mixed Civil Law and Common Law Jurisdiction’ (1974–75) 35 Louisiana Law Review 927, 946–8. (^121) Ole Lando, ‘Has PECL Been a Success or a Failure?’ (2009) 17 European Review of Private Law 367. (^122) Christian von Bar, Eric Clive and Hans Schulte-Nölke, Principles, Definitions and Model Rules of
European Private Law: Draft Common Frame of Reference (Sellier, 2009). (^123) Although some of those at the forefront of the European codification movement have tried to
downplay the differences between countries. On occasions they may even have a point: see Ole Lando, ‘Liberal, Social and Ethical Justice in European Contract Law’ (2006) 43 Common Market Law Review 817, 825. (^124) M P Ellinghaus, ‘An Australian Contract Law?’ (1989) 2 Journal of Contract Law 13; John Gava,
‘An Australian Contract Law — a Reply’ (1998) 12 Journal of Contract Law 242. (^125) For a study addressing these issues in a European context, see Christian von Bar and Ulrich
Drobnig, The Interaction of Contract Law and Tort and Property Law in Europe (Sellier, 2004). (^126) Andrew Robertson, ‘On the Distinction between Contract and Tort’ in Andrew Robertson (ed), The
Law of Obligations: Connections and Boundaries (UCL Press, 2004) 87. (^127) Bailment, family law, employment law, property law and company law are just a few of the more
obvious areas affected by the law of contract.
144 SYDNEY LAW REVIEW [VOL 36:
Consideration, which has always had an elusive quality,
128 is the most obvious
candidate. It has been criticised in a general way for a long time.
129 Some of the
applications of consideration, especially the rules of contract variation,
130 have also
attracted hostility. At the same time, the complications caused by consideration
should not be overstated,
131 especially where the contract is between commercial
parties.
132 In Australia, some of the harsher edges of consideration have been
smoothed away by the emergence of promissory estoppel.
133 Other potentially
controversial matters include the rules of contractual interpretation, the role of
good faith, and the scope of contractual damages. No doubt other examples would
emerge during the codification process. None of this is to suggest that the current
law in all of these areas is entirely satisfactory. It is not. But even this short list
shows that any significant reforms will be far from easy. To assume that a code can
necessarily produce a more satisfactory outcome than hundreds of years of
common law development creates a paradox. A clean break with the past ignores
the lessons of history. A code that continues with existing practice runs the risk of
repeating its errors. This may be why even codified civilian systems allow some
scope for judges to develop the law incrementally.
It will be hard to agree on the format of any contract code. To begin with,
there is the question of length. An immediate tension arises between producing a
code that is sufficiently general that it can be used by the ordinary person and
sufficiently specific that it can deal with complexities in the law of contract when
they arise.
(^134) The contract code produced for the LRCV by Ellinghaus and Wright
contained just 27 articles.
135 This is much shorter than earlier codes. The Indian
Contract Act 1872 contains more than 200 subsections. Admittedly, the scope of
the original Indian legislation was quite broad. It included quasi-contract, the sale
of goods, bailment, agency, partnership and guarantees and indemnity.^136 The
general contract provisions are much shorter, but these still run to just over 60
subsections. The legislation also includes illustrative examples. If longevity is
(^128) S F C Milsom, A Natural History of the Common Law (Cambridge University Press, 2003) 45;
David J Ibbetson, ‘Consideration and the Theory of Contract in Sixteenth Century Common Law’ in John Barton (ed), Towards a General Law of Contract (Dunker and Humblot, 1990) 67. (^129) Lord Wright, ‘Ought the Doctrine of Consideration to be Abolished from the Common Law’
(1936) 49 Harvard Law Review 1225; P S Atiyah, Essays on Contract (Oxford University Press,
- 179–243; G H Treitel, ‘Consideration: A Critical Analysis of Professor Atiyah’s Fundamental Restatement’ (1976) 50 Australian Law Journal 439. (^130) For a succinct account of some of the issues, see Treitel, above n 4, 11–46. (^131) J W Carter , Contract Law in Australia (LexisNexis, 6 th (^) ed, 2013) 148 [6.61] notes that it is more
likely to cause ‘inconvenience than injustice’. There is a degree of flexibility in the concept: ‘It must be remembered that that which amounts, in legal theory, to consideration, is sometimes a real consideration and sometimes not. Consideration in law is sometimes the real purchase price of a promise, and sometimes it is a mere fiction devised to make a promise enforceable’: Bob Guiness Ltd v Salomonsen [1948] 2 KB 42, 45. (^132) The Eurymedon [1975] AC 154, 167 (Lord Wilberforce); Steyn, above n 110, 437. (^133) Legione v Hateley (1983) 152 CLR 406; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR
394; Commonwealth v Verwayen (1990) 170 CLR 385. (^134) This is of course not just a problem in reforming private law. It is a major difficulty when it comes
to the reform of criminal law as well: J C Smith, ‘An Academic Lawyer and Law Reform’ (1981) 1 Legal Studies 119, 125. (^135) LRCV, above n 22. (^136) The law relating to sale of goods and partnership was put into separate statutes later on.
146 SYDNEY LAW REVIEW [VOL 36:
made when one person makes a promise to another person in return for a promise
or act by that person or another person.’ This is a clear break with the past. But it is
going to be difficult for judges, having applied the code once, to ignore past
decisions when applying the code in future. A simple question, such as what
amounts to a promise, may be too complex to resolve anew every time by resorting
to everyday language. One of the advantages of a system that relies on precedent is
that it saves judges time in answering these sorts of questions.
145
The form, content and application of any code are not the only troublesome
aspects of the whole process. It will also be necessary to come to a decision on the
mechanics of codification. Codes are rarely the work of individuals.^146 Most are
produced by a committee with all the strengths and weaknesses of those particular
bodies.
147 But who should comprise the committee? One obvious difficulty in
reforming Australian contract law is that there is no single body of specialists
already in place who can take over the role of stating and reforming contract law.
In the United States, the American Law Institute has traditionally performed the
first function. Primary responsibility for drawing up a new version of the
Restatement falls on a Reporter.
148 Having drafted a report, the Reporter then
consults with Advisers. On the American Restatement (Second) of Contracts
(1981), 12 specialist Advisers were used. A report was then submitted to the
Council of the American Law Institute, a body made up of lawyers, judges and
academics with more general interests. A draft was presented at the annual meeting
of the American Law Institute and comments sought more broadly from members
of the Institute. This method of reform has the great advantage that there is a vast
range of legal expertise to be called upon. It is ideally suited to laying down an
accurate version of the law as it stands.
149
The process of reform calls for a different, albeit overlapping, set of skills.
Codification is too important to be left to academics or even lawyers alone. It is
certainly a mistake to assume that academics will adopt a position of scholarly
neutrality. One might reasonably expect those involved to be enthusiastic about
codification. Some participants in recent European codification have gone further
and used codification as a means to pursue overtly political objectives,
150 whether
those are the cause of further European integration^151 or social justice.^152 Contract
(^145) Neil Duxbury, The Nature and Authority of Precedent (Cambridge University Press, 2008) 93–4. (^146) The Swiss Civil Code is the partial exception to this rule: Robinson, Fergus and Gordon, above
n 15, 282. (^147) C Northcote Parkinson, Parkinson’s Law (Penguin, first published 1958, 2002) 40–7. (^148) For an account of the process, see E Allan Farnsworth, ‘Ingredients in the Redaction of The
Restatement (Second) of Contracts’ (1981) 81 Columbia Law Review 1. (^149) More non-lawyers have been consulted in recent American Law Institute Restatements than in the
past: 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, 168–9. (^150) Martijn Hesselink, ‘The Politics of a European Civil Code’ (2004) 10 European Law Journal 675. (^151) Arthur Hartkamp, ‘Perspectives for the Development of a European Civil Code’ in Mauro Bussani
and Ugo Mattei (eds), The Common Core of European Civil Law (Kluwer, 2003) 67, 78. (^152) Gert Bruggemeier et al, ‘Social Justice in European Contract Law: A Manifesto’ (2004)
10 European Law Journal 653; Hugh Collins, The European Civil Code: The Way Forward (Cambridge University Press, 2008). This approach is at least transparent. For a powerful argument against the notion of social justice, see Friedrich A Hayek, Law Legislation and Liberty Volume 2: The Mirage of Social Justice (Chicago University Press, 1978) 97: ‘the phrase social justice is not,
2014] CONTRACT CODIFICATION IN AUSTRALIA 147
codes have succeeded best when commercial parties are fully involved in the
process. The United States Uniform Commercial Code
153 was heavily influenced
by the needs of business.
154 Consumers will also need to be consulted. As with
businesses, consumers are not a homogenous category.^155 Reconciling these
different interests will not be easy. Business and consumer groups may, for
example, have unrealistic expectations about the extent to which contract law can
be simplified. The legal profession is likely to be more sceptical.
156
However the process works, if any code is going to enjoy legitimacy then
there needs to be genuine consultation. It was disappointing that the period for
comments on the Discussion Paper was so short.^157 The best option would be for
an extended period of consultation to be overseen by the ALRC rather than the
office of the Attorney-General.
158 Law reform commissions have several
advantages over other bodies involved in law reform.
159 Unfortunately, politicians
are often reluctant to cede control of the law reform agenda. The ALRC has not
taken part in a number of recent major reforms.
160 Once politicians become
involved, it is difficult for them to admit that the project may be difficult or
impossible to complete. There is an understandable tendency to pay attention to
positive voices. One of the criticisms that can be levelled at the codification
process in Europe is that little account has been taken of dissenters. Facts that fail
to fit the codification agenda have been ignored.^161
A contract code need not set the law in aspic. It can be updated. While this
process is usually more straightforward than creating the initial code, it can also be
troublesome. The most obvious difficulty is working out the review process.
Should the code be updated automatically after a certain period of time, or should
it be changed when a problem has arisen? The period between the first American
Restatement of the Law of Contract and the second was 50 years. That seems too
as most people probably feel, an innocent expression of good will towards the less fortunate, but it has become a dishonest insinuation that one ought to agree to a demand of some special interest which they can give no reason for it’. (^153) The Uniform Commercial Code was published in 1952 and soon adopted by most state legislatures:
Robert Braucher, ‘The Legislative History of the Uniform Commercial Code’ (1964) 2 American Business Law Journal 137. (^154) Frederick K Beutel, ‘The Proposed Uniform [?] Commercial Code Should Not Be Adopted’ (1952)
61 Yale Law Journal 334, 335; Grant Gilmore, ‘The Uniform Commercial Code: A Reply to Professor Beutel’ (1952) 61 Yale Law Journal 364, 365–6. (^155) One of the criticisms of attempts to update the Uniform Commercial Code is that those involved in
the process had little grasp of the difficulties facing low-income consumers: Gail Hillebrand, ‘What’s Wrong with the Uniform Law Process?’ (2001) 52 Hastings Law Journal 631, 638–40. (^156) This is very much the impression gained from the responses to the Discussion Paper : see
Responses , above n 41. (^157) The Discussion Paper was released in March 2012; the deadline for submissions was 20 July 2012. (^158) For support for this view, see Sydney Law School Academics (and others); Alexander W Street
QC, Responses , above n 41. (^159) Peter Handford, ‘The Changing Face of Law Reform’ (1999) 73 Australian Law Journal 503, 507–10. (^160) For example, it was not involved in those reforms that eventually became the Australian Consumer
Law. (^161) This point is made forcibly by Roger Halson and David Campbell, ‘Harmonisation and its
Discontents: A Transaction Costs Critique of a European Contract Law’ in James Devenney and Mel B Kenny (eds), The Transformation of European Private Law (Cambridge University Press,
- See also, Mel Kenny, ‘The 2003 Action Plan on European Contract Law: Is the Commission Running Wild?’ (2003) 28 European Law Review 538.
2014] CONTRACT CODIFICATION IN AUSTRALIA 149
suggest that the objections to codification are ‘misguided and exaggerated’.
170 In
fact, much of the evidence points in the other direction. Many of the arguments
made in favour of codification are built on untested idealism.
171 The harmonisation
argument does carry some weight. Nevertheless, these results could be achieved
more easily in other ways. It is perfectly possible to favour substantive reform and
be sceptical about the merits of codifying contract law.
172 The evidence of the last
30 or so years does not suggest that Australian judges are incapable of reforming
contract doctrine, although it can be argued that the pace of innovation in the High
Court may have slowed in recent years.
173
There are considerable obstacles in the way of a successful code. A few
have been highlighted. Lessons can certainly be learnt from other jurisdictions.
174
What may seem attractive in the context of an academic seminar may be a rather
different proposition in practice. There is no guarantee that the outcome of such
deliberations will be satisfactory. There was some heavyweight criticism of
codification from the Chief Justice of New South Wales, Bathurst CJ.
175 Some of
the other experienced practitioners and academics who responded to the
consultation were also sceptical about the project.
176 If, as has been suggested, the
whole exercise is likely to be driven by bureaucrats, politicians and ‘stakeholders’,
rather than the ALRC in consultation with experts, there are further grounds to fear
the worse.^177 It is only necessary to look across the Tasman Sea. The New Zealand
contract statutes, which share some of the features of a code, are not usually
regarded as an unqualified success.^178 It would be going too far to describe the idea
of a contract code for Australia as a ‘calamity’, but it is something that should be
approached with the upmost caution. To go into the process without recognising
the pitfalls involved will produce an outcome that is not only unsatisfactory, but
may leave us with a body of contract doctrine which may be little better or even
worse than that it is intended to replace.
(^170) Dan Svantesson, ‘Codifying Australia’s Contract Law — Time for a Stocktake in the Common
Law Factory’ (2008) 20 Bond Law Review 1. (^171) This is not to denigrate Ellinghaus and Wright’s extremely valuable empirical research, but merely
to ponder whether the same results would occur in a real-life situation. (^172) Professor Andrew Burrows, who was also Chair of the English Law Commission, is a sceptic:
Andrew Burrows, ‘Legislative Reform of Remedies for Breach of Contract: The English Perspective’ (1997) 1 Edinburgh Law Review 155, 156. (^173) Andrew Stewart and J W Carter, ‘The High Court and Contract Law in the New Millennium’
(2003) 6 Flinders Journal of Law Reform 185. (^174) For a useful recent analysis of further lessons from Europe, see Martin Doris, ‘Promising Options,
Dead Ends and Reform of Australian Contract Law’ (2013) 33 Legal Studies 1. (^175) See Responses , above n 41. (^176) For cautious or sceptical voices, see Australian Corporate Lawyers Association; Herbert Smith
Freehills; King and Wood Mallesons; Sydney Law School Academics (and others); Warren Swain and Nick Gaskell, Responses , above n 41. Of course this sample may not reflect wider opinion. For a measured, but more positive, response see Dr Luke Nottage, Responses , above n 41. (^177) Stewart, above n 26, 90. (^178) David McLauchlan, ‘Contract and Commercial Law Reform in New Zealand’ (1984) 11 New
Zealand Universities Law Review 36; F G Barton, ‘The Effect of the Contract Statutes in New Zealand’ (2000) 16 Journal of Contract Law 233; John Farrar, ‘The Codification of Commercial Law’ in Jeremy Finn and Stephen Todd (eds), Law, Liberty, Legislation: Essays in Honour of John Burrows QC (LexisNexis, 2008) 49.
