Ideology in Private Law
It can be difficult to find ideology in the dry world of private law. Undergraduates are often attracted to the more controversial parts of the law – for instance, public law – where ideology is overt. The only real difficulty is, however, the need to look a little bit harder.
The case of M&S v BNP Paribas concerned the exceedingly dry topic of the implication of terms into a contract. This case in effect overturned the previous leading case, Belize Telecom. It was a commonly-held view that the effect of Belize Telecom was that the court could imply terms that were not expressly put in a contract simply with reference to the process of construing the parties’ intentions. The law was not constrained by the restrictive ‘officious bystander’ and ‘business efficacy’ tests. It was a case of determining what was agreed. But this was said to be ‘wrong in law’ in BNP Paribas.
What possible ideological change could this have wrought? I suggest that it reflects acceptance by the senior judiciary, contrary to previous trends, that the private law cannot be made wholly subordinate to what persons and institutions want it to be without reference to external norms and community standards – what Alastair Hudson calls ‘autopoiesis’. Instead, the courts are recognising that private law, to some extent, has to be subordinate to external norms and standards. In short, private law cannot be privatised.
Belize Telecom was the zenith of the ‘Hoffmann School’, named after the judicial champion of the approach that disparate doctrines could be assimilated into that of simply determining the parties’ intentions. Lord Hoffmann, beginning with the expansion of the process of interpretation itself, had drawn in the doctrines of causation and remoteness of damage before tackling the implication of terms.
An extra-judicial argument to draw fiduciary duties into this school has been made by Edelman J. Edelman argues that the usual fiduciary duties not to put one’s interest ahead of one’s principal’s, not to make a profit by way of the fiduciary office and to act in good faith are simply instances of the contractual agreement leading to implied terms. Clearly this requires an expansive approach to implication; these things are hardly necessary for business efficacy.
Yet Edelman’s argument ignores the fact that fiduciary duties import special equitable standards not referable to the intentions of the parties. Consider the marvellous dispute between Foxtons and Dr Townley. Townley used Foxtons to manage the letting of a dwelling he owned. It is alleged that Foxtons took an enormous mark-up on maintenance contractors’ fees; Townley cites a bill of £412.50 he says was marked up by almost 50% to £616. Foxtons’ justification is that the contract says that they can take a commission.
There are two possible outcomes, applying the current law scoping fiduciary duties. The first is that the fiduciary duty is displaced altogether. This is highly unlikely; it would require a hugely reduced responsibility and/or the circumscription of Foxtons’ power and discretion to act on Townley’s behalf. The second is that there is still a fiduciary duty. But the fiduciary duty is not commanded and delineated by the contract; it is merely shaped by it. Once it is raised, its irreducible core is not reduced by the parties’ intentions. Therefore full and frank disclosure of fees would be required to avoid liability to repay what is otherwise in effect a secret commission contrary to the no-profit rule; a general clause is not enough. If the class action succeeds, it will be very costly for Foxtons.
Edelman’s position represents a threat to the imposition of these external standards. It would permit the dilution of vital safeguards for persons such as Townley who are vulnerable to their agents’ actions. Contracts such as these are offered on a ‘take it or leave it’ basis – allowing the economically dominant party to impose its terms on the weaker one. Privatising the regulation of fiduciary relationships would give such institutions carte blanche and encourage predatory behaviour. Edelman’s argument and Hoffmann’s approach, while not addressing the consequences of the contractualisation of fiduciary duties, goes some way to enabling this.
So how significant is BNP Paribas to this? At face value, it just affects the doctrine of implied terms, merely superadding the requirement of ‘business efficacy’ to the test for implication in fact. But it, I suggest, represents the halt and reversal of the Hoffmann School. The senior judiciary have recognised that its expansion has gone too far and are rowing back to a more palatable position. The parties’ agreement is not always king and external factors matter. Since, Edelman relies heavily on Lord Hoffmann’s approach, it now seems highly unlikely that an English court would accept his argument.
The wider context is the difference between the common law and equity. The common law reflects the ideology of the time when it was shaped; the commercial and industrial revolutions and the doctrine of laissez-faire. According to Atiyah, ‘the function of the civil law … was to enable people to “realise their wills” … unhampered by government interference, and so forth.’ Equity, on the other hand, was rooted in the notion of ‘conscience’ and concerned with the protection of vulnerable people. It is therefore unsurprising that equitable doctrines simply cannot be reduced to contract without risking their destruction.
It also provides a safety valve for the development of regulatory law where the judges are expected to keep to the sanctity of contract. Atiyah also noted that judges characterised terms implied in fact as the intentions of the parties; this permitted the courts, formally, to hold they were respecting the ideology of freedom of contract while they were in fact effacing it. BNP Paribas can therefore also be seen as judicial recognition that this power needs to be retained both within and outside of the contractual sphere.
Ideology matters. It matters to the dry and dusty corners of private law which in turn govern to rather more emotionally charged matters such as that faced by Dr Townley who said that Foxtons ‘tried to rip off the wrong guy’. Ideology determines the kind of world we want to live in, and since private law delineates the rules and regulations of that world, ideology matters to private law.
Derek Whayman
Outgoing Editor-in-Chief