Contractual Discretion and Administrative Discretion: A Unified Analysis

Publication Date01 Jul 2005
AuthorTerence Daintith
DOIhttp://doi.org/10.1111/j.1468-2230.2005.00551.x
Contractual Discretion and Administrative Discretion:
AUni¢ed Analysis
Terence Daintith
n
While judicial control of discretionary power is at the centre of administrative law, it is a topic
which has received little attention in contract. By tracing the development of the relevant case
law in administrativelaw judicial review and in contract, the paperseeks to show how review in
both contexts has converged upon a single core technique of control through decisional stan-
dards. The paper further argues that the consequent identity of method in public and private
law review of discretion does not in itself weaken basic public/private law distinctions.While
the territories of legislation and contract may overlap, they present basic di¡erences as contexts
for the exercise of judicial controlof discretion, and these di¡erences of context may weigh more
heavily than identity of approach in determin ing the outcomes of litigation.
1
PROLOGUE
Consider the following clauses:
An application for approval to drill a new exploration ordevelopmentwell, or to re-
enter an existi ng exploration or development well shall be made in duplicate not less
than onemonth or such otherperiod as is approvedprior to the commencement of the
operation, and such an operation shall not be commenced without prior approval.
2
If anyother pits shouldbe requiredother than the twoin part sunk, then the [mineral
lessee] shall have powerto sink another pit,or other pits, as aforesaid,but only in such
a situation, or such situations, as shall have been previouslyapproved of in writing by
[the landowner].
3
Each of these clauses reserves a powerof control over a key operation in exploring
for or producing minerals (oil and gas in the ¢rst example, coal in the second) to
the owner orcontroller of such resources who arranges for their exploitation by a
n
Institute of AdvancedLegal Studies, London, and School of Law, Universityof Western Australia.
1 This paperhas been prepared as part of a research projecton Discretion in Petroleum Administra-
tion in Australia and the United Kingdom, funded by theUK Economic and Social Research
Council (grant no RES-000 -22 -0329), the Australian Department of Industry, Tourism and
Resources,the Australian Mining a nd Energy LawAssociation (AMPLA), and WoodsideEnergy
Ltd. The support of all these bodies is gratefully acknowledged, as is the research assistance of
Melissa Cheung (London) and Jessica Davies (Perth).Dawn Oliver,Mi keTaggart and PeterVin-
cent-Joneswere all k ind enough to read the paperi n draft,and made many helpful suggestions for
improvement. Thanks also go to participants in seminars at the Universities of Adelaide and of
WesternAustralia, where an earlier version of the paper was presented.
2 Petroleum (Submerged Lands) Acts, Schedule of Speci¢c Requirements as to O¡shore Petro-
leum Exploration and Production (February 2004 electronic consolidation),cl 501(1).The Sche -
dule is a col lection of directions made u nder Petroleum (Submerged Lands) Act (C’th) 1967,s 101.
3SeeMontgomerie vCarrick (1848) 10D. 1387 (Court of Session).
rThe Modern LawReview Limited 2005
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2005) 68(4) MLR 554^593
company with the necessary capital and specialist skills. The owner or controller
may be the state, which is the case in the ¢rst example, or a private person or
company, as in the second. In terms the provisions are much alike, but the ¢rst is
a general direction made under legislative authority by Australian Ministers
responsible for the regulation ofo¡shore oil and gas production,while the second
is a clause of an agreement between a private ownerof land in Scotland and the
holder of a coal mining lease over it. The provisions share the characteristic of
expressinga power to consent ^ or not ^ to the drilling of a well or pitin appar-
ently unfettered terms. Such consents are, in practice, rarely problematic ^ the
resourceowner or controller shares with the exploitingcompanya ¢nancial i nter-
est in speedy and full exploration and production ^ but if a dispute did arise and
require resolution by litigation, the court would need to decide whether the dis-
cretion of the owner to refuse or qualify consent had been properly exercised.
Should or will the fact that the power is administrative (as in the ¢rst case),
4
or
contractual (as in the second), determine or in£uence the courts construction of
these discretionary powers?
INTRODUCTION
Discretion ^ a legally-constituted power of decision ^ is a staple element in both
administrative
5
and contractual arrangements, but whereas its judicial control
provides the core of administrative law in the United Kingdom and Australia, it
is hardly even acknowledged as an issue in the standard authorities on contract.
6
This may be because the basic contractual discretions are commonly not
4 Powersof th is type in relation to state-ownedor controlled petroleum resources may sometimes
be expressed in contractual form, as in the United K ingdom petroleum production licence
granted under Petroleum Act 1998, s 3(1). The content of the UK licence is however almost
entirely determined by regulations under s 4(1)of the Act, and I take the view that such licences
are likely to be interpretedas ifthey were regulatory in nature: see T.C. Daintith, G. D.M.Wil-
loughbyand A. D.G. Hill (eds), UnitedKingdomOil and Gas Law (London: Sweet and Maxwell,3d
ed, 2004-, looseleaf ) para 1^335, and below, 212,228.
5 There is a very largeliterature on administrative discretion, both viewedfrom a speci¢cally legal
standpoint and in terms of general discussion of decision making: see D. Galligan, Discretionary
Powers: A Legal Study of O⁄cialDiscretion (Oxford: Clarendon Press, 1986); I. Ehrlich and R. A.
Posner,‘An Economic Analysis of Legal Rule Making’ (1974) Journal of Legal Studies 257; G.
Teubner,‘Juridi¢cation: Concepts, Aspects, Limits, Solutions’ in G. Teubner (ed), Juridi¢cationof
SocialSpheres(Berlin: de Gruyter,1987) 3^49;C. Diver,‘The Optimal Precisionof Administrative
Rules’(1983) 93 YaleLJ 65; G. R.Baldwin and K. Hawkins,‘Discretionary Justice: DavisRecon-
sidered’[1984]PL 570,G. R. Baldwin,Rules and Government (Oxford: Clarendon Press,1995) 3^58,
174^192; G. R. Baldwin,‘WhyRules Don’tWork’ (1990) 53MLR 321.
6 Neither the authors of Chitty on Contracts (London: Sweet and Maxwell, 29
th
ed, 2004), nor
McBryde, the authorof the current standard Scottish contract text, regard discretionary power
in contract as an issue meriting explicit discussion. Chitty does not give ‘discretion’an index e ntry.
W.W. McBryde,TheLaw of Contract in Scotland (Edinburgh:W. W. Green, 2
nd
ed, 2001) cites a few
discretion’ cases under such heads as implied terms (paras 9^74 to 9^76), consent to assignation
(para 12^44), and rights of termination(para 20^25).The Stair Memorial Encyclopediaof the Laws of
Scotland,vol 15 (Edinburgh:Law Society of Scotland and Butterworths,1996),title Obligations,
takes the same approach (see eg paras 860, 861). Compare W. M. Gloag, Law of Contract (Edin-
burgh: W. Green, 2
nd
ed, 1929), who devotes a section to ‘implied limitations of discretionary
powers’ in his discuss ion of implied terms: 302^308.
Terence Daintith
555rThe Modern LawReview Limited 2005
expressed in contracts but are contained within the general rules of contract law:
those determining, for example, when a party may terminate a contract on the
basis of the others breach.
7
In recent years, however, some leading contract scho-
lars have addressed it, but in terms which suggest that discretion is a topic with
which contract law has di⁄culty, one on which it needs to learn from adminis-
trative law,
8
or one which the courts have only recently, following the imposition
of legislative controls on certain powerstaken under contracts, begun to address.
9
These conclusions seem to me to neglect a signi¢cant body of contract case-law
which, I shall argue, shows a well-developed approach to express contractual dis-
cretions developing from the mid-nineteenth century, an approach which is
essentiallyidentical to thatcurrently employedin judicial reviewof administrative
action.
10
What I shall do here, therefore, is to trace the development of this case-
law alongside that of the approach to judicial review of administrative discretion,
and to seek to showhow control in both contexts has converged on a single core
technique wh ich I term control through d ecisional standards.
The article alsotries to weigh the signi¢cance of this ¢nding againstestablished
conceptions of a basic di¡erence between public lawordering, basedon unilater-
ally imposed changes in the legal rights and duti es of individuals, and contractual
ordering, based on concepts of consent and party autonomy.
11
The notion of a
fundamental divide between these orders already appears problematic when one
notes howcontract and unilateral ordering may be substituted for one another in
certain regulatory contexts like the arrangements for minerals cited above.
Among public lawyers, the argument that a common set of values underpins
decision-making and control of power in both public and private law has been
deployed to challenge the justi¢cation for maintainingclear distinctions between
public andprivate law processand in debates about theconstitutional foundations
of judicial review.
12
I shall however argue that identity of method in private and
public law review of discretion does not entitle us to assume that there will be
parallel trends in the evolution of such review nor that its results will necessarily
7 ‘The common law insists that the injured partyshould enjoy the choice of either terminating the
contract or a⁄rming it’.H. Col lins,The Law ofContract (London, Butterworths,2
nd
ed,1993) 307.
8 J. Beatson,‘Public Law In£uences in Contract Law’ in J. Beatson and D. Friedmann (eds), Good
Faithand Faultin ContractLaw (Oxford, Clarendon Press,1995)263, 267^271. Contra E.Peden, Good
Faith in thePerformance ofContracts (Australia: LexisNexis Butterworth, 2003) 167. An interesting
comparative account of how judges treat contractual,public law, and otherdi scretionarypowers
in South African law is o¡ered in Cockerell,‘Second-guessing the exercise of contractual power
on rationality grounds’ [1997] Acta Juridica26.
9 H. Collins, ‘Discretionary Powers in Contracts’ in D. Campbell, H. Collins and J. Wightman
(eds), Implicit Dimensions of Contracts: Discrete, Relationaland NetworkContracts (Oxford:Hart Pub-
lishing, 2003) 219,231.
10 I o¡ered a brief review of some of these cases in T. Daintith, ‘Regulation by contract: the new
prerogative’ [1979] CLP 41,esp 54^58.
11 Se e forexample R. Summers,‘TheTechniqueElement in Law’ (1971) 53 CaliforniaLa w Review 733;
H.W. R.Wadeand C. Forsyth, AdministrativeLaw (Oxford: OUP,9
th
ed, 2004) 354^355.
12 D.Oliver, CommonValues and the Public-Private Divide (London: Butterworths1999); D. Oliver,‘Is
the Ultra Vires Rule the Basis of Judicial Review’ [1987] PL 543; D. Oliver,‘Review of (Non-
Statutory) Discretions’in C. Forsyth (ed), Judicial Reviewand the Constitution (Oxford: Hart Pub-
lishing, 2000) 307^325.
Contractual Discretion and AdministrativeDi scretion
556 rThe Modern Law ReviewLimited 2005

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