Whincop, Michael J; Keyes, Mary E --- "Statutes' Domains in Private International Law: An Economic Theory of the Limits of Mandatory Rules" [1998] SydLawRw 18; (1998) 20 (3) Sydney Law Review 435
[*] Faculty of Law, Griffith University. The authors thank two anonymous referees and the Editorial Board for invaluable comments.
[1] See eg, Llewellyn, K N, The Common Law Tradition: Deciding Appeals (1960) at 521–35.
[2] See in particular, Acts Interpretation Act 1901 (Cth) ss15AA and 15AB. See also Part 3 of this paper.
[3] Ayres, I and Gertner, R, “Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules” (1989) 99 Yale LJ 87 (hereinafter Ayres and Gertner, Filling Gaps); Ayres, I and Gertner, R, “Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules” (1992) 101 Yale LJ 729 (hereinafter Ayres and Gertner, Strategic Contractual Inefficiency); Craswell, R, “Contract Law, Default Rules, and the Philosophy of Promising” (1989) 88 Mich LR 489; Johnston, J S, “Strategic Bargaining and the Economic Theory of Contract Default Rules” (1990) 100 Yale LJ 615; Schwartz, A, “Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies” (1992) 21 J Leg Stud 271.
[4] Coase, R H, “The Problem of Social Cost” (1960) 3 J L & Econ 1.
[5] This is particularly true of corporate theory. For a synthesis of competing views, see Coffee, J C, “The Mandatory/Enabling Balance in Corporate Law: An Essay on the Judicial Role” (1989) 89 Colum LR 1618.
[6] Vita Food Products Inc v Unus Shipping Co [1939] AC 277. The few limitations imposed at common law are outlined by Lord Wright at 290–1.
[7] For example, the place of the parties’ residence, the place the contract was made and is to be performed, the location of intermediaries, and the like.
[8] See generally Black, B S, “Is Corporate Law Trivial? A Political and Economic Analysis” (1990) 84 Northwestern ULR 542.
[9] Opeskin, B R, “The Use of Choice of Law Rules in Statutes Affecting Contracts: A Note on the Insurance Contracts Act 1984” (1996) 10 J Cont L 231 at 242.
[10] This strategy is most effective when the parties are not sure when the contract will terminate. If duration is certain, the parties will expect A to defect in the last period: Baird, D G, Gertner, R H and Picker, R C, Game Theory and the Law (1994) at 165–78. The analysis also depends on A being unable to terminate the contract at no cost.
[11] Ayres and Gertner Filling Gaps, above n3; Ayres and Gertner, Strategic Contractual Inefficiency, above n3.
[12] Baird et al, above n10 at 80–3.
[13] For example, if 10 per cent of the population is high risk, the marginal cost of insuring a high risk customer is 100, and the marginal cost of insuring the remaining population is 40, the insurer would have to assume that the marginal cost of insuring is 46 (ie, .1 x 100 + .9 x 40 = 46).
[14] Moral hazard defines a condition where one contracting party can take actions that are in that party’s interests but which are difficult to observe or verify. It is often discussed in the context of the effect of insurance on the incentives of the insured to be careful.
[15] Accord, The Bremen v Zapata Off-Shore Co.[1972] USSC 129; , 407 US 1 at 14 (1971); Coast Lines Ltd v Hudig & Veder Chartering NV [1972] 2 QB 34 at 44.
[16] See text accompanying nn8–10.
[17] See generally Posner, R A, “An Economic Approach to Legal Procedure and Judicial Administration” (1973) 2 J Leg Stud 399. See also Carnival Cruise Lines Inc v Shute, [1991] USSC 56; 499 US 585 at 593–4 (1991).
[18] Henry v Henry [1996] HCA 51; (1996) 185 CLR 571; CSR Ltd v Cigna Insurance Australia Ltd (1997) 146 ALR 402 (hereinafter CSR).
[19] Oceanic Sun Line Special Shipping Co Inc v Fay [1988] HCA 32; (1988) 165 CLR 197 at 224, 230–2 per Brennan J (emphasis added) (hereinafter Oceanic). See also id at 259–61 per Gaudron J; The Eleftheria [1970] P 94 at 103; Leigh-Mardon Pty Ltd v PRC Inc [1993] FCA 324; (1993) 44 FCR 88 at 99 (hereinafter Leigh-Mardon).
[20] Accord, Easterbrook, F H, “Statutes’ Domains” (1983) 50 U Chi LR 533 at 540; Eskridge, W N, “The New Textualism” (1990) 37 UCLA LR 621 at 688–9; Kramer, L, “Rethinking Choice of Law” (1990) 20 Colum LR 277; Finley v United States, [1989] USSC 96; 490 US 545, 556 (1988). Easterbrook’s ideas resonate strongly in our work (including its title).
[21] Sunstein, C, “Interpreting Statutes in the Regulatory State” (1989) 103 Harv LR 407.
[22] Fawcett, JJ, “Evasion of Law and Mandatory Rules in Private International Law” [1990] CLJ 44 at 53.
[23] Id at 55–6. The capacity of a court to interpret the economic and social policy of a foreign law is presumably even more limited than its capacity with respect to a domestic law. See generally Fawcett, JJ, “Is American Governmental Interest Analysis the Solution to English Tort Choice of Law Problems?” (1992) 31 ICLQ 150.
[24] The High Court’s recent statements of principle in lis alibi pendens offer significant inducements to the winners of such races: Henry v Henry, above n18 at 591; cf CSR above n18; Nygh, P, “Voth in the Family Court Re-visited: The High Court pronounces forum conveniens and lis alibi pendens” (1996) 10 Aust J Family Law 163 at 169–70.
[25] Cf Mann, F A, “Statutes and the Conflict of Laws” (1972–3) 46 Brit Yrbk of Int L 117 at 140–1.
[26] Sunstein, above n21 at 428.
[27] See generally Posner, RA, “Statutory Interpretation – in the Classroom and in the Courtroom” (1983) 50 U Chi LR 800 at 817–20 (interpretation by “imaginative reconstruction”); Bistricic v Rokov [1905] ArgusLawRp 27; (1976) 11 ALR 129 at 136; Wright v Ford Motor Co Ltd [1967] 1 QB 230.
[28] Cf Mashaw, JL, Greed, Chaos, and Governance: Using Public Choice to Improve Public Law (1997) at 89.
[29] Levi, E, An Introduction to Legal Reasoning (1949) at 30–1.
[30] Vita Food Products Inc v Unus Shipping Co, above n6 (emphasis added).
[31] For an example of an Act doing these things, see Carriage of Goods by Sea Act 1991 (Cth), ss11, 16.
[32] Accord, Mills v Meeking [1990] HCA 6; (1990) 91 ALR 16 at 30–31 (Dawson J); Telstra Corp Ltd v Australasian Performing Rights Association Ltd [1997] HCA 41; (1997) 146 ALR 649 at 681–2 (Kirby J).
[33] Accord, Acts Interpretation Act 1901 (Cth) s15AB(3)(a).
[34] Davidson, D, “Belief and the Basis of Meaning” (1974) 27 Synthese 309.
[35] The same arguments apply equally to any contractual provision excluding a default rule (probably, to any contractual provision).
[36] Above n19.
[37] Id Wilson and Toohey JJ at 202–5, 208; Brennan J at 225–9; Deane J at 256; Gaudron J at 261.
[38] Fuller, L, “Consideration and Form” (1941) 41 Colum LR 799; Ayres and Gertner, Filling Gaps, above n3 at 123–4. See below text accompanying nn47–49.
[39] For a recent example, consider the High Court’s decision in CSR, above n18. That case concerned the relevance of duress and unconscionability to an agreement to abandon certain contractual claims. The fact that these unconscionable bargaining tactics arose during the performance of the contract, not at the beginning of it, is consistent with what one would expect from economic theory: Williamson, O E, Economic Institutions of Capitalism (1985) at 61–3. 35 The same arguments apply equally to any contractual provision excluding a default rule
[40] White Cliffs Opal Mines Ltd v Miller [1904] NSWStRp 18; (1904) 4 SR (NSW) 150; The Parouth [1982] 2 Lloyd’s Rep 351; Sykes E I and Pryles, M C, Australian Private International Law (3rd edn, 1991) at 611–3; Nygh, P, Conflict of Laws in Australia (6th edn, 1995) at 304.
[41] Oceanic, above n19 at 222 (Brennan J), 261 (Gaudron J); Mackender v Feldia AG [1967] 2 QB 590, 602–3. See generally Bell, A, “Jurisdiction and Arbitration Agreements in Transnational Contracts, Part II” (1996) 10 J Cont L 97 at 98–101; Briggs, A, “The Formation of International Contracts” [1990] LMCLQ 192; Garner, M, “Formation of International Contracts – Finding the Right Choice of Law Rule” (1989) 63 ALJ 751; Australian Law Reform Commission, Choice of Law, Report No 58 (1992) Australian Law Reform Commission, Sydney at pars 8.12, 8.59; Green v Australian Industrial Investment Ltd [1989] FCA 482; (1989) 90 ALR 500.
[42] Bodley Head Ltd v Flegon [1972] 1 WLR 680; Saxby v Fulton [1909] UKLawRpKQB 75; [1909] 2 KB 208; South African Breweries Ltd v King [1900] UKLawRpCh 19; [1900] 1 Ch 273; Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152; Mackender above n41 at 596; The Chaparral[1972] USSC 129; , 407 US 1 (1972); Carnival Cruise Lines Inc v Shute [1991] USSC 56; 499 US 585 (1991).
[43] Lawyers often talk of third party effects in the contract of insurance where the benefit of insurance or other contracts is payable to someone other than a party (see, eg, Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd (1988) 165 CLR 107; Insurance Contracts Act 1984 (Cth) ss48, 49, 51). We do not refer to third party effects of this sort, but to contracts the performance of which harms a third person. Neither do we refer to “pecuniary” externalities – those where there are private costs but no social costs. For example, permitting parties to contract out of choice of law and jurisdiction defaults may increase competition in the relevant market, and so affect prices and incomes: Posner, R A, Economic Analysis of Law (4th edn, 1992) at 7.
[44] However, collusive contracts (such as those which attempt to fix prices) are an example where courts should enforce the mandatory rule in the Trade Practices Act 1974 (Cth).
[45] Trade Practices Act 1974 (Cth) s75AD.
[46] [1969] 62 Qd R 378; affirmed on different grounds on appeal: Freehold Land Investments Ltd v Queensland Estates Pty Ltd [1970] HCA 31; (1970) 123 CLR 418. The High Court judgments do not address the issue of the proper law of the contract and are not considered below.
[47] See generally Landes, W M and Posner, R A, Economic Structure of Tort Law (1987) at 280–4.
[48] Ayres and Gertner, above n3 at 119–21.
[49] Consumer Credit Code s15; see also Australian Law Reform Commission, Insurance Contracts, Report No 20 (1982) Australian Government Publishing Service, Canberra at 44–51 (describing this logic in relation to “standard cover”).
[50] Trade Practices Act 1974 (Cth) s67.
[51] Opeskin, above n9 at 238–9.
[52] See, eg, Akai Pty Ltd v The People’s Insurance Co Ltd (1995) 8 ANZ Insurance Cases 61–254 at 75853 (Sheller JA); BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VicRp 71; [1985] VR 725; British Controlled Oilfields Ltd v Stagg [1921] WN 319.
[53] See, eg, Coast Lines Ltd, above n15 at 44; Stanley Kerr Holdings Pty Ltd v Gibor Textile Enterprises Ltd [1978] 2 NSWLR 372.
[54] Accord; Coast Lines, above n15 at 44 (“In the maritime law of this country ... it is an accepted principle that a contract is, if possible, to be construed so as to make it valid rather than invalid. ... [I]t cannot be assumed that the Dutch charterers put their signatures to a contract which they did not intend to honour.”); In re Missouri Steamship Co [1889] UKLawRpCh 82; (1889) 42 Ch D 321 at 337, 341.
[55] Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society [1934] HCA 3; (1934) 50 CLR 581 at 600–1 per Dixon J. See Dutson, S, “The Territorial Application of Statutes” [1996] MonashULawRw 3; (1996) 22 Mon LR 69 at 81–86.
[56] Kelly, D S, Localising Rules in the Conflict of Laws (1974) at 5–7.
[57] Above n46. The appeal to the High Court was dismissed (above although on grounds which did not depend on private international law issues.
[58] [1996] HCA 39; (1996) 71 ALJR 156 (hereinafter Akai).
[59] [1969] 62 Qd R 378 at 385.
[60] Sykes and Pryles, above n40 at 598–9; Fawcett, above n22 at 59–60; Nygh, above n40 at 296, Thomson, A, “A Different Approach to Choice of Law in Contract” (1980) 43 Mod LR 650 at 659.
[61] Here we find some pseudo-third party effects – the agreement increased competition, which has adverse affects on other agents. This is a classic example of a pecuniary (as opposed to a technological) externality, which has no social costs, and should be ignored for policy purposes; see n44 above.
[62] The proper role of statutory interpretation, given interest group politics, is an issue of dispute. Some suggest that courts should interpret interest group deals strictly as if they were contracts; see Easterbrook, above n20. Others suggest that deals be interpreted as if they were in the public interest, so to compel the “real” deals to be made explicit. Explicit deals lower the cost of information in the political process, which in turn increases the ability of others to scrutinise and oppose the deal; Macey, J R, “Promoting Public-Regarding Legislation Through Statutory Interpretation: An Interest Group Model” (1986) 86 Colum LR 223. Others suggest that interest group politics does not compel any particular interpretive approach; Mashaw, above n28 at 81– 105. We favour the Easterbrook view (although the Macey view applies in much the same way), given its proximity to our own theory, at least in the context of the facts of this case.
[63] This is, in effect, an implied limitation; see part 3.C.(i).
[64] For a discussion of s54, see text accompanying n14.
[65] Supreme Court of New South Wales, unreported, 7 December 1993 (first instance); (1995) 8 ANZ Insurance Cases 61–254 (appeal).
[66] Above n58 at 164.
[67] Id at 170.
[68] Id at 171–172, relying upon Compagnie des Messageries Maritime v Wilson [1954] HCA 62; (1954) 94 CLR 577; Agro Co of Canada Ltd v The “Regal Scout” (1983) 148 DLR (3d) 412; and The Hollandia [1983] 1 AC 565. The analysis in The Hollandia is practically identical to that in Akai.
[69] Above n58 at 172. Emphasis added. Contrast the approach taken by the majority of the High Court in Oceanic, above n19, where the potential application of the substantive remedial provisions of the Contracts Review Act 1980 (NSW) was in issue, although the exclusive jurisdiction clause was held not to be incorporated in the contract. Contrast also Leigh-Mardon, above n19 at 108, where Beazley J held that the potential application of s52 of the Trade Practices Act did not displace the prima facie rule that jurisdiction clauses should be enforced. The one case cited, in support of the majority’s view Nelson v Nelson (1995) 184 CLR 538, was fundamentally different to the facts in Akai. It involved an act which was illegal – seeking a subsidy for a loan to which the borrower was not entitled. In that sense, the illegality involved genuine third party effects, since it involved misuse of government welfare. The case in Akai involved no third party effects.
[70] Above n58 at 159.
[71] Id at 160.
[72] Id at 159–60.
[73] See especially Australian Law Reform Commission, above n49 at 8, 280, where the language of the report describes a clear exclusion of a choice of law default, but says nothing at all to contradict the existence of a forum default. It is quite likely that parliament intended that Australian insurance companies’ offshore business should not be constrained by the destruction of the forum default, even though contracts written in the course of that business might possibly be held to most closely connect with Australia.
[74] See eg, id at xxi (“Freedom of contract and promotion of competition, so far as compatible with principles of equity and fairness to the insuring public, are basic goals.”)
[75] Id at 12–3, 47, 132, 231, ch6.
[76] Above n58 at 172. 77 [1957] 1 QB 267 at 288. 76 Above n58 at 172. 77 [1957] 1 QB 267 at 288.