Abstract
AbstractRelational contract theory holds that the interpretation of a contract must take full account of the context and surrounding circumstances of the parties’ bargain so as to give effect to their respective intentions. This paper argues that if a relational treatment of contracts is to be institutionalised, in the sense of being utilised in a contract dispute to determine and give effect to the parties’ intentions, then it must operate at an abstract level. That is to say, rather than using relevant context to determine what the actual parties intended in the circumstances at hand, the contextualist enquiry should ascertain the relevant context by reference to what the parties would have agreed to in the circumstances, had they properly reflected on what their self-interest requires. I discuss the merits of this proposition by reference to a number of appellate judgments, which already endorse contextualism as a response to contractual ambiguity, and I ultimately apply it to the Supreme Court's judgment in Rainy Sky SA v Kookmin Bank.
Highlights
The ‘relational contract’ recently became the basis for controversy in English contract law, when Lord Leggatt, sitting at first instance, relied on this concept to justify implying a duty of good faith into an oral contract between two highly sophisticated parties.1 The contract concerned a joint venture formed between an investor and an hotelier for the purpose of buying and developing a number of luxury hotels in Greece
This paper argues that if a relational treatment of contracts is to be institutionalised, in the sense of being utilised in a contract dispute to determine and give effect to the parties’ intentions, it must operate at an abstract level
The four cases examined above demonstrate the difficulty in authoritatively identifying the relevant context, even where all parties involved in the adjudication process are clearly inclined to follow a contextualist – rather than literal – approach to the dispute at hand
Summary
The ‘relational contract’ recently became the basis for controversy in English contract law, when Lord Leggatt, sitting at first instance, relied on this concept to justify implying a duty of good faith into an oral contract between two highly sophisticated parties. The contract concerned a joint venture formed between an investor and an hotelier for the purpose of buying and developing a number of luxury hotels in Greece. The relationalist approach has no use for an a priori framework by which the court is to impute a set of expectations onto the parties, based on what a reasonable person in the parties’ position would have intended, as is the case with the current legal position This is because if an examination of the context informing the parties’ relationship so warrants, a relational interpretation of contract rules could well afford the injured party with an appropriate remedy where the bargain is incomplete on that front or, theoretically, even where no express bargain had been previously hammered out.. Should a contractual relationship break down as a result of opportunism, the relational interpretation of the agreement would take into account both the specific circumstances underlying the agreement and the overall context of the relationship On this basis, the court would be better placed to identify actions as opportunistic, which from a classical contract point of view might have been treated as both reasonable and foreseeable (and preventable through relevant provision in the agreement).. There are distinct advantages in a contextualist interpretation, even of ‘discrete’ contracts, in the sense that the undertaking of interpretation reflects more accurately the policy objectives of the law as declared
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