Transplanting Irrationality from Public to Private Law: Braganza v BP Shipping Ltd [2015] UKSC 17

Chris Himsworth

A. INTRODUCTION

A few years ago, two distinguished public lawyers offered their perspectives1 on a phenomenon which both described as an approach by the courts to the control of contractual discretion in private law which derived directly from the more developed, public law, handling of administrative discretion. Although their reactions to the phenomenon differed, what they shared was an interest in this migration of public law reasoning into a private law context. Since then, the case law has expanded and it has, in particular, included the UK Supreme Court case of Braganza v BP Shipping Ltd2 (hereafter ‘Braganza’), the first in which a (divided) UK top court has addressed the issue and raised its profile. The case has also, however, raised as many questions as it sought to answer and a reassessment of this phenomenon, still presenting itself at the interface of public and private law, is due. This paper starts (section B) with a short summary of the views of Professors Oliver and Daintith; summarises the Braganza decision (section C); and considers, in rather more detail, the route taken by the court in Braganza to its own conclusions (section D). Section E contains an analysis of the post-Braganza situation and there are some closing thoughts in section F. Running through the paper as a whole are the questions of how appropriate it is that courts have adopted the parallel public law reasoning that they have and how appropriate was the route to that position. There has been a ‘transplant’3 here, not of substantive law from one jurisdiction to another, but, within the same jurisdiction, of an analytical framework or technique from one class of case to another.

B. OLIVER AND DAINTITH

For Dawn Oliver, her interest in ‘contract and the control of discretion’ emerged as an element in a broad project enquiring into ‘the relationship between public law and private law’, engaging three themes: the fact that public and private law have in common that they are concerned with controlling the exercise of power, whether by the state or by private individuals; that both public and private law are concerned to protect vital interests of individuals and public interests against abuses of state and private power; and that similar

1 Dawn Oliver, Common Values and the Public-Private Divide (1999) (hereafter ‘Oliver’ esp ch 8; Terence Daintith, ‘Contractual Discretion and Administrative Discretion’: A Unified Analysis’ (2005) 68 MLR 554 (‘Daintith’).2 [2015] UKSC 17; [2015] 1 WLR 1661;[2015] 4 All E.R. 639.3 See eg A Watson, Legal Transplants: An Approach to Comparative Law (1974). For an interestingly different and more sceptical visions, see R B Seidman, ‘The Law of Non-transferability of Law’ in The State, Law and Development (1978) ch 2 and P Legrand, The Impossibility of Legal transplants’ (1997) 4 Maastricht J Eur & Comp L 111.

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theories of government, democracy and citizenship underpin the role of the courts in controlling power and protecting individual and public interests.4

Thus, put simply, Oliver’s project was to demonstrate that ‘although it may be convenient, especially for pedagogical purposes, to draw a distinction between public and private law, in practice public and private law cannot be separated.’5 The pedagogical and other technical and presentational reasons for distinguishing public and private law tend to conceal large areas in which the two overlap and, more importantly, are jointly informed by common theories of democracy and citizenship. In turn, these underpin the adoption by courts of common values – of ‘individual dignity, autonomy, respect, status and security’6 – in their control of power, both public and private.

In that context, it is unsurprising that Oliver should alight upon parallels already identified between public and private law in relation to the control of discretion in contract. She drew, in particular, upon the writings of Professors Beatson7 and Daintith,8 to the latter of whom we shall return, with reference to a later piece of work. Oliver noted that Beatson had observed that ‘contract law has difficulty in dealing with discretion’.9 The starting point had been that discretion granted by contract had initially been treated as unfettered.10 She went on, however, to trace cases11 in which the courts had rendered discretionary powers subject to a degree of control to prevent abuse. Powers should not be exercised either partially or entirely selfishly. Noting that this reflected principles similar to those recognised in judicial review, Oliver identified this as imposing ‘a private law equivalent’ of what she called the considerate altruism model of democracy on contracting parties’.12 The common law sought to engender trust. And Beatson had suggested that ‘contractual discretions have been held not to be unfettered but to be subject to common law principles of procedural propriety (ie fairness or natural justice), ‘Wednesbury’ reasonableness (or rationality), bona fides, propriety of purpose, and relevancy’.13 On the other hand, Beatson had confined this approach to only particular situations within the contractual sphere, rather than to contract law generally. Such situations included formal precontractual tendering processes or where one contracting party has power to which he is supposed to use to hold the balance between a number of competing interests.14 Noting that Professor Daintith saw things differently (in that he had identified specific circumstances in ‘constitutive contracts’ – constitutive of eg a club, trade union or a company, in which the ‘common purpose’ of the organisation provided a criterion against which to measure the exercise of discretion – but also other contracts where

4 Oliver p 1.5 P 146 P 29.7 J Beatson, ‘Judicial review in contract’ in J Beatson and D Friedmann (eds) Good Faith and Fault in Contract Law (reprinted 1995) (‘Beatson and Friedmann’) p180.8 P 1829 Beatson and Friedmann at 267, Oliver at 181.10 As illustrated in Weinberger v Inglis (No 2) [1919] AC 606. 11 Eg Tillmanns & Co v SS Knutsford Ltd [1908] 2 KB 385. 12 T C Daintith. ‘Regulation by Contract: The New Prerogative’ in [1979] CLP 41..13 Beatson in Beatson and Friedmann at p 269. ‘Wednesbury’ is, of course, a reference to Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.14 Oliver p 182.

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the courts have relied on the fiduciary position of the controlling group to produce a general obligation to act in good faith, not corruptly, or arbitrarily or capriciously) and recognised a wider similarity of results, across the application of administrative law tests to discretionary statutory power and on the other hand of common law tests to contractual power, Oliver saw these parallels as being illustrated in three cases she went on to discuss.15

Daintith’s own principal contribution in this area came in his ‘Contractual Discretion and Administrative Discretion: A Unified Analysis’ of 2005.16 As was apparent from Oliver’s account, the overlaps between public and private law, as represented, in particular, by the propensity of governments to use the mechanism of contract as a regulatory tool, as a substitute for regulation by ‘command and control’ had been the meat and drink of Daintith’s scholarship. Perhaps inevitably, therefore, he was interested in developments which had seen a convergence between private and public case law on a single core technique which he termed ‘control through decisional standards’.17 What he was anxious to do, in his magisterial survey, was to stress the relevance to an analysis of contemporary phenomena of the historical evolution of both strands of case law and, more importantly, to caution against too readily ignoring conceptual differences between ‘public law ordering and ‘contractual ordering’, leading, in turn, to challenging the distinction between public and private law process. He wanted to argue, however, 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 be identical in parallel cases. Differences of context may override similarities of approach.

Arguing in this way, he deliberately distinguished his position from that of Oliver. His argument, he said, went at once further and less far than Oliver’s. It went further in that the cases he drew on18 did not support the limitations she had seen in the application of the similar principles in the two fields. At the same time, his argument was (what he called) ‘less ambitious’ than Oliver’s in that ‘the fact that the identification and control of decisional standards is an approach to discretion encountered across the whole spectrum of sources of discretionary power should make us cautious, rather than confident, about its significance as a mark of the essential unity of these sources.’19 The nature of the judicial task in each case was different.

As he said, the ‘court in both kinds of case must undertake a process of interpretation and construction of words in their context’.20 For administrative discretion, that context is furnished by the constitutional process through which the rule containing the discretionary

15 Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd [1989] 2 Lloyd’s Rep 570, Wood v Wood (1874) LR 9 Exch 190, and Lapointe v L’Association de Bienfaisance et de Retraite de la Police de Montréal [1906] AC 535.16 (2005) 68 MLR 554-593.17 P 55618 Among others, Abu Dhabi Tanker Co v Product Star Shipping Ltd (No 2) [1993] 1 Lloyds LR 397, The ‘Vainqueur José’ [1979] 1 Lloyds LR 557, Clark v Nomura [2000] IRLR 766, Gan Insurance Co Ltd v Tai Ping Equitable Life Assurance Society[2001] 2 All ER(Comm) 299, Paragon Finance plc v Staunton[2002] 2 All ER 248, Castor Fitzgerald International v Horkulak [2004] IRLR 94219 584.20 At 585.

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power is produced. This, in turn, generates a (fluctuating) relationship between Parliament (the normal source of the rules), the executive and the courts which comes to define the intensity of judicial review from time to time.

This background, reasoned Daintith, bears hardly at all on the context of contractual discretion which, in turn, produces a number of differences in the way courts treat the legal materials before them in radically different contexts, resulting from differences in how to handle uncertainty; the centrality or otherwise of the discretionary power; and the importance of reciprocity between parties. The parallels between the two apparently similar forms of review of discretionary power could be deceptive. There was no reason why the evolution of judges’ attitudes to the discipline of the market and the degree to which it should underpin contract law should correspond to changing judicial attitudes to executive power.21

C. BRAGANZA – A SUMMARY

It was common ground in Braganza that, in the early morning of 11 May 2009, the chief engineer of BP’s MV British Unity was lost at sea in the mid-North Atlantic. Compensation (to his widow22) would be payable, under her husband’s contract of employment, unless, ‘in the opinion of the Company or its insurers, the death ... resulted from amongst other things, the Officer’s wilful act, default or misconduct’.23 The employing company had formed the opinion that the most likely explanation for Mr Niloufer Braganza’s disappearance was suicide and, therefore, that no compensation was payable. In the litigation which followed it was not ‘the task of this or any other court determining a claim under such a contract to decide what actually happened to Mr Braganza. The task of the court is to decide whether his employer was entitled to form the opinion which it did. The issue of general principle in this appeal, therefore, is the test to be applied by the court in deciding that question’.24

At first instance,25 Teare J had upheld the widow’s claim under the contract, a decision subsequently reversed by a unanimous Court of Appeal.26 In the Supreme Court, it was held by a majority (Lady Hale, with Lords Kerr and Hodge; but with Lord Neuberger and Lord Wilson dissenting), that Teare J’s decision should be reinstated. Although ultimately divided, as to the result, the Court was agreed that, in determining the ‘test to be applied’, they were dealing with an implied term regulating the exercise of discretionary power by the employer; that the parallel with the courts’ control of public authorities should be drawn; that the lessons of Associated Provincial Picture Houses Ltd v Wednesbury Corporation (‘Wednesbury’)27should be deployed; and that this should involve not only the (more extreme

21 598.22 The third party rights aspect is not further pursued here but see eg Scottish Law Commission, Review of Contract Law – Third Party Rights in Contract (No 245, 2015).23 Braganza para 1 (Lady Hale) quoting from clause 7.6.3 of the contract of employment24 Braganza para 2.

25 [2012] EWHC 1423 (Comm). There had also been a tort action but that had been rejected. 26 [2013] EWCA Civ 230. 27 [1948] 1 KB 223.

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and outcome-based) test of a ‘conclusion so unreasonable that no reasonable authority could ever have come to it’28 but also the test of whether, int al, relevant matters had been taken into account in the decision-making process and irrelevant matters ignored. Lady Hale stated specifically29 that she understood that she and Lord Neuberger30 were agreed as to the nature of the test.

The point at which members of the Court parted was in the application of the agreed test to the circumstances (including the relevant facts) of Braganza. For Lady Hale: ‘In my view, a decision that an employee has committed suicide is not a rational or reasonable decision, in the terms discussed above, unless the employer has had it clearly in mind that suicide is such an improbability that cogent evidence is required to form the positive opinion that it has taken place’.31

On the facts,32 it was Lady Hale’s view that the BP employee (BP’s General Manager, Mr Sullivan) whose task it was to consider whether he was in a position, in the light of reports from investigation teams, to make a positive finding of suicide, should have asked himself whether the evidence was sufficiently cogent to overcome the inherent improbability of such a thing. But there had been no positive indications of suicide; there had been a failure fully to investigate such signs as there were; and other factors, such as Mr Braganza’s Roman Catholicism, increased the inherent improbability of suicide. Overall, this led to Lady Hale’s conclusion that, whilst the company’s view that Mr Braganza had committed suicide was not ‘arbitrary, capricious or perverse’, it was nevertheless ‘unreasonable in the Wednesbury sense, having been formed without taking relevant matters into account’.33 The widow’s contractual claim ‘for the comparatively modest sum of US$ 230,265, albeit with interest’, was upheld.34

Acknowledging that there were dangers of appearing ‘unusually stony-hearted’, not to hope that a way could be found to ensure that, having suffered the terrible blow of losing her husband, Mrs Braganza could be spared the additional blows of an inquiry concluding that he had killed himself and the deprivation of a death-in-service benefit, it was nevertheless Lord Neuberger’s view that ‘it is the most fundamental duty of a judge to apply the law, even if it sometimes leads to hard consequences in the circumstances of a particular case’35 and that, whilst agreeing with Lady Hale as to the test to be applied, denied the alleged flaws identified by Lady Hale in the conclusions reached by BP’s decision-maker. He thought it not fairly open to a court to decide that the conclusions reached by the inquiry team (and, therefore, the opinion formed by Mr Sullivan fell foul of the test laid down by Rix, LJ in Socimer International Bank Ltd v Standard Bank Ltd36. In his view, neither the conclusions nor the

28 Braganza para 24.29 Para 30.30 At para 103. But see below.31 Para 36.32 Paras 38-42.33 Para 42.34 Para 43.35 Para 107.36 [2008] EWCA Civ 116.

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opinion could be characterised as ‘arbitrary, capricious, perverse or irrational’. The reports of the investigators were impressive and the conclusion reached was carefully and rationally explained. Mr Sullivan could not be criticised for relying on them.37

D. BRAGANZA - THE ROUTE TO THE TEST ADOPTED

We shall return to aspects of the actual outcome in Braganza. In the meantime, however, we should go back to look in more detail at the route adopted by the Court, and especially in Lady Hale’s (majority) judgment, to the test to be applied. What will be apparent is that, in comparison with the position we last saw described by Daintith in 2005, the Court was able to move, apparently unproblematically, to a test based on (‘public law’) judicial review standards.

Lady Hale starts cautiously, and with an engaging paradox:

‘There are many statements in the reported cases to the effect that the principles are well settled and well understood, but this case illustrates that all is not as clear or as well understood as it might be’.38

She explains the nature of contractual discretion and of the basis of the courts’ role:

‘Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.’39

Lady Hale then writes of ‘an obvious parallel between cases where a contract assigns a decision-making function to one of the parties and cases where a statute (or the royal prerogative) assigns a decision-making function to a public authority. In neither case is the court the primary decision-maker. The primary decision-maker is the contracting party or the

37 Braganza para 126. It is impossible to leave the judgment of Lord Neuberger without one other observation, bearing upon the way in the Supreme Court’s final decision in Braganza was reached. His reference to the harsh consequences for Mrs Braganza, had his own view prevailed, has been mentioned. He might have added, but did not, that such a hard case might make bad law. Early in his judgment, he also acknowledged, perhaps apologetically, that he would be setting out the significant facts as he saw them, although conscious that this meant a degree of overlap with Lady Hale’s judgment (para 66). It may also be not wholly insignificant that, in the first version of the Braganza judgment on the UKSC website, a number of the cross-references between Lord Neuberger’s judgment and that of Lady Hale were completely erroneous. Would it be too much to surmise that, in its first manifestation, Lord Neuberger’s judgment was written in expectation of its heading up the majority opinions in the case?38 Para 17.39 Para 18.

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public authority.’40 And she concludes that it ‘is right, therefore, that the standard of review generally adopted by the courts to the decisions of a contracting party should be no more demanding than the standard of review adopted in the judicial review of administrative action.’41 For her, however, ‘[t]he question is whether it should be any less demanding’.42 And: ‘The decided cases reveal an understandable reluctance to adopt the fully developed rigour of the principles of judicial review of administrative action in a contractual context. But at the same time they have struggled to articulate precisely what the difference might be.’43

‘These authorities ...are’, Lady Hale says, ‘helpfully summarised by Rix LJ in Socimer v International Bank Ltd v Standard Bank London Ltd:44

‘It is plain from these authorities that a decision-maker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria. ... Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesbury rationality test, the decision remains that of the decision-maker, whereas on entirely objective criteria of reasonableness the decision-maker becomes the court itself.’45

So far so good. Lady Hale is joining Rix, LJ in rejecting the application of ‘objective’ criteria of reasonableness which would, following Laws, LJ, make the court the decision-maker. At this point, however, Lady Hale develops the argument in two ways. In the first place, she derives additional support for a test based on irrationality from dicta of Lord Sumption in the ‘completely different context’ of Hayes v Willoughby46 (a case in which the issue was whether the conduct of an alleged harasser (under the Protection from Harassment Act 1997) was ‘reasonable’) where he too distinguished between reasonableness measured according to ‘an external, objective standard’ and, on the other hand, a test of rationality measured by reference to ‘an absence of arbitrariness, of capriciousness or of reasoning so outrageous in 40 Para 19.41 Para 19.42 Ibid.43 Para 20. The cases Lady Hale cites are Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The “Product Star”) (No 2) [1993] 1 Lloyd’s Rep 397; Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd’s Rep IR 221, and Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] EWCA Civ 1047, [2001] 2 All ER (Comm) 299.

44 [2008] EWCA Civ 116, [2008] Bus LR 1304.

45 Ibid at para 66, quoted by Lady Hale in Braganza at para 22. 46 [2013] UKSC 17, [2013] 1 WLR 935 at para 14.

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its defiance of logic as to be perverse’ which Lady Hale interpreted as an ‘obvious echo of the classic definition given by Lord Diplock’ in Council of Civil Service Unions v Minister for the Civil Service47. But, secondly, Lady Hale introduced what she called the ‘problem with this formulation’ which was that it was ‘not a precise rendition’ of the test adopted by Lord Greene in Wednesbury. Essential to Lord Greene’s test were his ‘two limbs’ of unreasonableness.

‘The first limb focusses on the decision-making process – whether the right matters have been taken into account in reaching the decision. The second focusses upon its outcome – whether even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it. The latter is often used as a shorthand for the Wednesbury principle, but without necessarily excluding the former.’48

Lady Hale went on to explain that, in Braganza, the parties had disagreed as to whether the test in the term to be implied into the contract included both limbs. The employer would have confined the test to the more extreme ‘outrageous’ limb but Mrs Braganza had argued for the application of both limbs - the employer must ‘keep within the four corners of the matters which they ought to consider’.49

Lady Hale’s conclusion, by way of dicta of Mocatta J in The Vainqueur José50 and then of Lord Sumption in Hayes v Willoughby (above) and British Telecommunications Plc v Telefónica O2 UK Ltd51, was that:

‘There are signs, therefore, that the contractual implied term is drawing closer and closer to the principles applicable in judicial review. The contractual cases do not in terms discuss whether both limbs of the Wednesbury test apply. However, in Gan Insurance, where the issue was the limits, if any, to the reinsurers’ power to withhold approval to the insured’s agreement to settle a claim, Mance LJ first commented that “what was proscribed was unreasonableness in the sense of conduct or a decision to which no reasonable person having the relevant discretion could have subscribed” (para 64); but he concluded that “any withholding of approval by reinsurers should take place in good faith after consideration of and on the basis of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject matter of the particular reinsurance ....”’(para 67).52

And then: ‘If it is part of a rational decision-making process to exclude extraneous considerations, it is in my view also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. It is of the essence of “Wednesbury reasonableness” (or “GCHQ rationality”) review to consider the rationality of the decision-making process rather than to concentrate upon the outcome. Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker.’53

47 [1985] AC 374 at 410.48 Braganza para 24.49 Para 25.50 [1979] 1 Lloyds Rep 557.51 [2014] UKSC 42, [2014] Bus LR 765.52 Braganza para 28.53 Para 29.

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She continued:

30 It is clear, however, that unless the court can imply a term that the outcome be objectively reasonable – for example, a reasonable price or a reasonable term – the court will only imply a term that the decision-making process be lawful and rational in the public law sense, that the decision is made rationally (as well as in good faith) and consistently with its contractual purpose. For my part, I would include both limbs of the Wednesbury formulation in the rationality test. Indeed, I understand Lord Neuberger (at para 103 of his judgment) and I to be agreed as to the nature of the test.31 But whatever term may be implied will depend upon the terms and the context of the particular contract involved. I would add to that Mocatta J's observation in The Vainqueur José, that “it would be a mistake to expect [of a lay body] the same expert, professional and almost microscopic investigation of the problems, both factual and legal, that is demanded of a suit in a court of law” (577). Nor would “some slight misdirection” matter, at least if it were clear that, had the legal position been properly appreciated, the decision would have been the same. It may very well be that the same high standards of decision-making ought not to be expected of most contractual decision-makers as are expected of the modern state.32 However, it is unnecessary to reach a final conclusion on the precise extent to which an implied contractual term may differ from the principles applicable to judicial review of administrative action. Given that the question may arise in so many different contractual contexts, it may well be that no precise answer can be given. The particular context of this case is an employment contract, which, as Lord Hodge explains, is of a different character from an ordinary commercial contract. Any decision-making function entrusted to the employer has to be exercised in accordance with the implied obligation of trust and confidence. This must be borne in mind in considering how the contractual decision-maker should approach the question of whether a person has committed suicide.’54

Thus, the final stage in the development of Lady Hale’s argument was focused on that issue. It was a question of the standard of proof to be applied by the person exercising a contractual discretion to the making of a positive finding of suicide. Rejecting the approach of Longmore LJ in the Court of Appeal who had concluded that a ‘balance of probabilities’ test was appropriate,55 Lady Hale herself stated:

‘The employer is entrusted with making a decision which has serious consequences for the family of a deceased employee. It deprives them of what would otherwise be a contractual right. There is no reason why the employer should not approach that decision in the same way that any other decision-maker should do. On the contrary, in view of the special nature of the employment relationship, there is every reason why they should do so. Employers can reasonably be expected to inform themselves of the principles which are relevant to the decisions which they have to make. Employment law is complicated and demanding in many legal systems, but employers are expected to know it. They can also reasonably be expected to know how they should approach making the important decisions which they are required or empowered to make under the terms of the employment contract. In my view, a decision that an employee has committed suicide is not a rational or reasonable decision, in the terms discussed above, unless the employer has had it clearly in mind that suicide is such an improbability that cogent evidence is required to form the positive opinion that it has taken place.56

54 But Lord Neuburger’s critique of Lord Hodge’s analysis at para 104 should also be noted.55 Drawing, in particular, on In re H (Minors) [1996] AC 563 and In re B (Children) [2009] AC 11.56 Para 36.

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Applying that test (of the need for ‘cogent evidence’) to the facts of Braganza, Lady Hale concluded her judgment with the assessment that Mr Sullivan should have asked himself whether the evidence was sufficiently cogent to overcome the inherent improbability of suicide.57 In her view, to the contrary, there had been no positive indications of suicide. She saw the ‘bullet points’ taken into account by the investigation team and by Mr Sullivan as mere ‘straws in the wind’. On the other hand, there had been evidence of Mr Braganza’s normal behaviour prior to the event. But also: ‘A further relevant factor which ought to have been in the mind of this employer is that Mr Braganza was a Roman Catholic. There are cultures in which suicide is an acceptable, even an honourable, solution to certain problems or dilemmas. But his was not one of them. For him, suicide was a mortal sin. This increases its inherent improbability in his case and the corresponding need for cogent evidence to support a positive finding.’58

Thus, for Lady Hale, Mr Sullivan (and, therefore, BP) did not have sufficiently cogent evidence to justify a conclusion of suicide. ‘No-one suggests that his decision was “arbitrary, capricious or perverse”, but in my view it was unreasonable in the Wednesbury sense, having been formed without taking relevant matters into account.’59

E. ANALYSIS

In her judgment in Braganza, Lady Hale, with (apparent) support from the whole court, has sought to resolve, at UK Supreme Court level, uncertainties in the area by signing up to the wholesale importation into the private law domain of doctrine familiar in the public law context of judicial review. It may be that there has been ‘no final conclusion on the precise extent to which an implied contractual term may differ from the principles applicable to judicial review of administrative action’60 but their close similarities have been established.

This will plainly have been a development welcomed by those with a prior commitment to an integration of judicial reasoning across the public-private divide. In the light, however, of the uncertainties previously expressed in the case law and the misgivings of Daintith and other critics, there is every reason too to reassess where Braganza has taken the law of contract. Was the solution adopted inevitable? What alternatives might have been available? What are the broader consequences of the Supreme Court’s decision?

Let us scrutinise the reasoning in the case a little further:

1. It starts from the common ground of the existence of the phenomenon of unilateral, discretionary decision-making within contractual relationships of many sorts.61

57 Para 39.58 Para 41.59 Para 42.60 See above.61 To some, it may appear paradoxical that, in a consensual relationship normally based on agreement of the contractual terms, that one party would concede to another a power of unilateral variation. But Collins has, for instance, spelled out the case for a, sometimes superficially concealed, economic rationale. See H Collins,’Discretionary Powers in contracts’ in D Campbell, H Collins and J Wightman (eds), Implicit

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2. When such decision-making is engaged in, there is much further common ground that:(a) It takes place (as is apparent from eg Daintith) in many different contractual

contexts – often affecting (at least pre-Braganza) the likely judicial response to them

(b) The courts cannot treat the decisions made in the exercise of such discretionary powers as wholly unchallengeable. As Collins has written: ‘The courts demonstrate a reluctance to concede that a contractual term confers an unfettered discretionary power’.62 It is too obvious to a modern court that power may be abused and an injustice done - although it has also been noted that, in earlier times, there was substantial support, in loyalty to the intention of the parties, for an assumption of unreviewable discretion.63

(c) On the other hand, the courts should not take upon themselves the power to determine the correctness of the decision (and then remake it), in the way that they might judge the ‘objective’ reasonableness of a decision to fix a reasonable price or a reasonable time.64

(d) Therefore, a device in legal reasoning has to be adopted to distance courts from a simple remaking of the decision, whilst enabling them to assert and deploy grounds for challenge where appropriate.

(e) And that device has to be compatible with the general obligation of courts to act in accordance with the presumed (implied) general intentions of the parties to the contract.

3. One compelling possibility in these circumstances would be the test adopted in Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR)65 in which, at II.9:105 (Unilateral determination by a party), it is stated that: ‘Where the price or any other contractual term is to be determined by one party and that party’s determination is grossly unreasonable then, notwithstanding any provision in the contract to the contrary, a reasonable price or other term is substituted.’ Domestically, it has been recognised that the response could or should be in terms of the application of a general test of ‘good faith’.66

4. In the meantime, however, according to the process already described, the courts in cases prior to Braganza and now the Supreme Court in Braganza itself have, without reference to possibilities such as the DCFR formula, gone down the, closely related, alternative route of a adopting a test of (extreme) unreasonableness or irrationality on the part of the decision-maker. If that were all that they have done, it would be unnecessary to pursue the matter further. But in fact, of course, the courts have gone further. And in two (related) ways. Both raise questions.

Dimensions of Contract (2003).62 Collins, Implicit Dimensions p 220. See also Beatson..63 See note 00 above.64 This distinction was relied on in Waaler (see note 00 below).65 (2005), at II 9.105.66See eg R Hooley, ‘Controlling Contractual Discretion’ [2013] CLJ 65-90; E McKendrick “Good Faith in the Performance of a Contract in English Law” 196-209 in LA Dimatteo and M Hogg (eds), Comparative Contract Law: British and American Perspectives (OUP, 2016).

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5. In the first place, they have acknowledged the ‘obvious parallel’67 between the test adopted with ‘public law’ jurisprudence.68 And secondly, they have sought to use that ‘public law’ model to expand or refine the test appropriate in the contract cases.

6. It is important to mention that first, perhaps rather simple, point (the noting of the ‘obvious parallel’), if only to make clear that it was never essential to the development of a coherent judicial response in the contractual area. The DCFR formulation, which quite independently generates ‘gross unreasonableness’, reveals that. There is nothing exclusively ‘public’ about gross unreasonableness. But two considerations may explain why the public law parallel has been insisted upon. In the first place, the opportunity has been there for courts in the UK jurisdictions to observe the parallel and then to exploit it. The UK courts are not divided (in the manner of the division between cours de cassation and tribunaux administratifs/conseil d’état), into private and public systems. Especially at the top, where civil actions may follow judicial reviews into the Supreme Court, the techniques of the ‘other’ family of procedures are well-known and comprehended by the judges. And secondly, there will always be the will, on the part of courts striking out in the development of a new line of argument to seek recourse to parallel forms of reasoning where available. Sometimes, this will be to look at such parallel developments in the other UK jurisdictions or abroad. In this case, it is, instead, to derive potentially powerful analogous assistance from the public lawyers ie from themselves but with their public law hats on. On the other hand, absent any ideological commitment to the evaporation of public/private distinctions for its own sake, there has been no compelling need to follow the public law lead into the control of discretion. In particular, it would have been perfectly possible for the courts simply to observe, en passant, the similarities of language between this area of contractual adjudication and Wednesbury unreasonableness without asserting any adoption of public law or of ‘public law values’.69 Where Lady Hale invokes Lord Sumption’s dicta in Hayes, no question

67 Lady Hale at para 19. 68 Rather late in this paper, it has to be observed that, although the binary division of the reasoning world into ‘public’ judicial review of executive decision-making and ‘private’ review of contractual discretion has served us well so far, we should also remind ourselves of an important divergence between the law of England and Wales and the law of Scotland. A reluctance in Scotland to define access to judicial review by reference to a public/private test, as authoritatively illustrated in West v Secretary of State for Scotland 1992 SC 385, has led to a situation in which some forms of dispute call for resolution in Scotland by judicial review whereas, in England, this would be denied because of the absence of a ‘sufficient public law element’. Examples of this have occurred in relation to challenges to the decisions of arbitrators and, in particular, of construction adjudicators.

69 This is the language (of ‘values’) of and the line taken by Ewan McEndrick when he writes of ‘The infiltration of public law values into private law?’ in his chapter on ‘Judicial Control of Contractual Discretion’ in M Freedland and J-B Auby (eds), The Public Law/Private Law Divide: Une entente assez cordiale? (Hart, 2006). It was not a triumph of public law values over private law principles but more accurate to conceive of the process as an example of private law ‘borrowing’ from public law in order to fill a gap in the armoury of private law. AND next sentence.That book also includes an important chapter by Mark Freedland , ‘The Evolving Approach to the Public/Private Distinction in English Law’.

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about ‘criminal law’ values is raised. All that is happening is a passing recognition of the similarity of language in the formulation of a ‘decisional standard’.

7. But the linked second question above is more important. Once acknowledged, the exploitation of the apparent link into ‘public law’ is seductive. If a ‘public law’ analogy has indeed been adopted then, especially for a court anxious to test the further opportunities available to continue to leave the contractual decision-making power in place but, at the same time, to expand the courts’ powers to intervene, it is easy to understand the temptation presented. This was indeed the route taken (although with some caution, against the run of existing authority70) by the Supreme Court in Braganza.

8. By way of expansion upon that caution, I would add that, if a more elaborate transplant is to be made :(a) There is or ought to be, with respect, an obligation to be more terminologically

careful with the interpretation and then the adoption into contract law of the public law tests. If there is one particular item of concern in Lady Hale’s judgment, it is at the point where she seeks to accommodate the ‘two limbs’ of Wednesbury within ‘rationality review’. What she does is to start from the cases which support the application of the principles reflected in the Wednesbury unreasonable/Diplock irrationality test but then to claim a logical flaw, stemming from Lord Diplock himself, in his failure to carry forward into his version of ‘irrationality’ those other failures listed by Lord Greene, in his first ‘limb’, as including the need to take account of or ignore, as the case may be, relevant or irrelevant considerations in the exercise of discretion. This failure was at the heart of Lady Hale’s judgment.71

(b) But this surely involves some sleight of hand? There will always be much room for manoeuvre among chosen categories of unreasonableness and their classification for the purposes of delineating the grounds of review but one clear distinction can be sustained. This was indeed the distinction deliberately made by Lord Diplock, but then denied by Lady Hale, when he tied his own notion of irrationality to ‘Wednesbury unreasonableness’. This was not a mistaken ‘formulation’. It was not an ‘imprecise rendition’. It was an explicit assertion of an identifiable and distinctive ground of review. To seek to smuggle back into an analysis of irrationality those other grounds (of irrelevant considerations etc) of judicial review is surely to mistake the intentions of Lords Greene and Diplock. It is also to distort the post GCHQ analysis which places ‘irrelevant considerations’ in the category of ‘illegality’ rather than ‘irrationality’.72 To embrace Lord Greene’s ‘first limb’ is to embrace, in effect, the entirety of the (non-irrationality based) grounds of judicial review.

(c) That might not, of course, be beyond the scope of a supreme court but making the bigger transplant carries with it the obligation too to address the question of exactly how much more of the ‘public law’ baggage has also to be deployed.

70 But see Dyson LJ in Paragon Finance.71 Paras 23-4, 29-30.72 See also De Smith’s Judicial Review.

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There is an inevitable danger of cherry-picking some of the language of Wednesbury, shorn of its conceptual underpinning in public law. In particular, the question has to be asked about whether that language can survive its transplant without the accompanying core device of ‘jurisdiction’ or vires, within which the decision-maker, in the public context, must, in most judicial presentations of the field, operate.

(d) If the public law foundation of judicial review has to be scrutinised, then so too do the disputes within the judicial review community as to the grounds themselves before the transplant is approved. Inevitably, one has in mind, in the context of Wednesbury irrationality, the arguments that it be displaced by a test of proportionality. Such arguments may or may not have substance (there is no general commitment to proportionality at the Supreme Court level) but, if they do have strength, do they also make the transition from the world of statutory interpretation to interpretation of the intention of contracting parties?

9. Another point to be borne in mind is that to apply ‘both limbs’ of Wednesbury is to encounter public law adjudication at the limits of its legitimacy. Professor John Griffith was a known critic of judicial activism in this area and he was, in particular, profoundly critical of the extension of judicial review into review on the basis of justiciable human rights. But, if one has the legitimacy of judicial decision-making in mind – and this must indeed be at the core of the judicial hesitation in Braganza already noted - it is also not difficult to share Griffith’s concerns about the power of judges to nominate, in a process of ‘interpretation’ those purposes to be deemed proper or improper, those considerations to be dubbed relevant or irrelevant in discretionary decision-making. But, in the public law sphere, we do, at least, have a developed (if, at its limits, fallible) jurisprudence to distinguish those purposes or considerations appropriately to be treated as relevant or not to a planning decision, a housing decision, or a decision relating to the funding of overseas aid. On the other hand, who, arriving at Braganza for the first time, would have considered ‘relevant’ to the company’s decision-making about Mr Braganza, his Roman Catholic faith?73

10. There are two further important considerations:(a) If a fuller transplant is to be conceded there is a need for much more clarity about

not only the content of the material transplanted from public law but also about the ‘limbs’ of contract law to which it is to attach. Lady Hale’s judgment is largely cast in quite general terms, although she accepts the ARGUMENT OF Lord Hodge (specifically rebutted by Lord Neuberger) that the notion of a ‘duty of trust and confidence’ in labour law was relevant to the decision in Braganza. That implied that contract terms should vary from one context to another, but with little guidance as to the basis or extent of such variation.74

(b) And there is a final (more technical) question about the transplant operation, relating to the court’s formulation of a remedy or outcome. In Braganza, the Court’s decision that the failure to take account of Mr Braganza’s faith was to fail

73 There are surely major questions here too about the evidence necessary to establish the extent of Mr Braganza’s faith and the statistical basis for Catholic abstention from suicide?74 Paras 31-2.

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to take account of a relevant consideration did not merely have the consequence that British Petroleum’s decision was quashed, the normal outcome in judicial review. Instead, without the option of a remaking of the decision, damages were awarded and that was the end of the matter. In judicial review, the limited character of the remedy and the provisionality of the outcome are protective of judicial legitimacy.

F. CONCLUSIONS

Before the UK Supreme Court’s decision in Braganza there were evident uncertainties about the state of the law governing the review of the exercise of discretionary powers under contracts. Now that the top court has made its decision in the area, many of those uncertainties might be presumed to have been ended. On the other hand, it was a Supreme Court divided as to the outcome, with the court’s President in the minority, against his Deputy.75 It may, therefore, be imagined that the case will require to be revisited at some point. In any event, it will doubtless take a while for the decision to ‘bed in’ and it may be some time before its contribution can be fully assessed.76

In the meantime, however, it may be possible to draw together some provisional conclusions. Without pushing the transplant imagery too far, there will inevitably be an interest in assessing its prospects for success – whether the transplanted items of public law will ‘take’ by proving compatible with their new environment and flourishing or whether, on the other hand, they will be rejected.

The criteria relevant to such an assessment may fall under two broad heads – in the first place, providing a measure of Braganza’s contribution to contracting parties looking to the courts for the resolution of disputes according to their intentions and with a sufficient degree of certainty and predictability; and secondly providing for courts themselves the legitimacy they seek as institutions in this area, with only a supervisory role.

And, according to both those measures and drawing on the observations offered in the previous section, there are considerable grounds for scepticism. Against the general drift of opinion of expert commentators and against the general run of previous cases, the Supreme Court has pushed out the boat of judicial activism in the direction of greatly extended grounds of review without the protection of the ‘will of Parliament’ and without the cover of the limited remedial scope of ‘public’ judicial review. It seems unlikely that, whether by the standards of certainty and predictability or of the legitimacy of their own operation, they have embarked on a successful venture.

75 And see note 00 above.76 Cases since Braganza include Evangelou v McNicol [2016] EWCA Civ 817; London Borough of Hounslow v Waaler [2007] EWCA Civ 45.

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