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Justifying the Application of the Theory of Efficient Breach Specifically Within the Context of Commercial Contracting

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Justifying the Application of the Theory of Efficient Breach Specifically Within the Context of Commercial Contracting Justifying the application of the theory of efficient breach specifically within the context of commercial contracting Liam David Kilvington Doctor of Philosophy University of York York Law School September 2018 2 Abstract This thesis provides a functional, and justifiable application of the theory of the efficient breach of contract within the commercial context. Limiting the theory’s application in this way is the primary original contribution. This is because the theory of efficient breach has not been explicitly applied solely to the commercial setting previously. This is legitimate because the underlying intention behind commercial contracting is profit generation. As such, maximising the wealth which flows from commercial contracts will be the focus of the parties involved. An additional original contribution is that this thesis represents the first major discussion of efficient breach which applies the theory to English law. This thesis also makes additional contributions. A definition of “commercial” in a contract law context is established to frame the discussion that is to follow. It is then outlined that the fundamental structure of English contract law will remain the same whether a dispute concerns a commercial, or a non-commercial contract. However, there is a difference in the approach of the court where rights are pursued for commercial, profit driven reasons in contrast with rights that are of a personal nature. Next, it is set out that in English law, promise is not the basis of contract. As such, the efficient breach of commercial contracts cannot be discounted based on issues of morality which are linked to promise breaking. Numerous other criticisms which have been directed at efficient breach are also discounted. Ultimately, a legitimate formulation of the efficient breach of commercial contracts is outlined. This iteration is permissive, rather than mandatory. It provides efficient optionality, meaning that where a party has the opportunity to breach efficiently, it will not necessarily take place. However, should a party choose to breach, they will be justified. This is a departure from more prescriptive approaches. 3 4 List of Contents Abstract ........................................................................................................................................... 3 List of Contents ................................................................................................................................... 5 Acknowledgments ............................................................................................................................... 9 Author’s Declaration ......................................................................................................................... 11 Chapter 1 ........................................................................................................................................... 13 Introduction ................................................................................................................................... 13 1.1 Precis ............................................................................................................................. 13 1.2 The Conceptual Framework of this Thesis ................................................................... 16 1.3 Methodology and Research Questions ......................................................................... 19 1.4 The Structure of this Thesis .......................................................................................... 26 Chapter 2 ........................................................................................................................................... 37 The Commercial Distinction in English Contract Law ................................................................. 37 2.1 Introduction ......................................................................................................................... 37 2.2 The Commercial Distinction in Contract Law .................................................................... 39 2.3 The Commercial Court........................................................................................................ 46 2.4 Commercial History ............................................................................................................ 49 2.5 Areas of the Law which make a Commercial Distinction .................................................. 51 2.6 Contracts which are not commercial in nature .................................................................... 64 2.7 The Boundary Cases ........................................................................................................... 70 2.8 Overall Conclusion ............................................................................................................. 74 Chapter 3 ........................................................................................................................................... 77 The Rationale behind the Commercial Distinction in English Contract Law ............................... 77 3.1 Introduction ......................................................................................................................... 77 3.2 Judicial Decision-Making and Legal Realism .................................................................... 79 3.3 The Commercial Distinction in Contract Law .................................................................... 84 3.4 Personal Contracts and the “Holiday” Cases ...................................................................... 90 3.5 The approach in Ruxley v Forsyth ....................................................................................... 93 3.6 A similar approach in Equity .............................................................................................. 98 3.7 Overall Conclusion ........................................................................................................... 107 Chapter 4 ......................................................................................................................................... 111 An Argument against Promise as the Basis of English Contract Law: Allaying Concerns Regarding Efficient Breach in the Commercial Contracting Context......................................... 111 5 4.1 Introduction ...................................................................................................................... 111 4.2 What is a Promise and what is a Contract? ....................................................................... 114 4.3 Contract is distinguishable from Promise based on the Domain in which it is utilised .... 118 4.4 The Historical Development of English Contract Law .................................................... 120 4.5 The Historical Development of Contract Law Elsewhere ................................................ 127 4.6 A Contrast between Contract and Equity ......................................................................... 132 4.7 The Deontological, and the Consequentialist approaches to Promising ........................... 136 4.8 Promissory Theories of Contract ...................................................................................... 140 4.9 Overall Conclusion ........................................................................................................... 141 Chapter 5 ........................................................................................................................................ 143 The Economic Analysis of Law and the Theory of Efficient Breach ......................................... 143 5.1 Introduction ...................................................................................................................... 143 5.2 The Economic Analysis of Law ....................................................................................... 144 5.3 The Theory of Efficient Breach ........................................................................................ 150 5.4 Measures of Efficiency ..................................................................................................... 163 5.5 Efficiency Based Decision Making .................................................................................. 170 5.6 Issues with Pursuing Economic Efficiency ...................................................................... 174 5.7 Economic Theories of Contract ........................................................................................ 177 5.8 Measures of Damages ....................................................................................................... 180 5.9 Overall Conclusion ........................................................................................................... 184 Chapter 6 ........................................................................................................................................ 185 Criticisms of the Theory of Efficient Breach ............................................................................. 185 6.1 Introduction ...................................................................................................................... 185 6.2 Potential Clashes and Contrasts with Existing English Legal Doctrines .......................... 186 6.3 Clashes with the Application of an Instrumentalist Approach ......................................... 211 6.4 Clashes Based on Commercial Practices .........................................................................
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