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Draft only - do note cite without permission of author
What is Commercial Law?
Stephen Bottomley
Director, Centre for Commercial Law
Paper presented to “Challenges to Commercial Law” Conference[1]
17 September 2001
Centre for Commercial Law
Faculty of Law
The Australian National University
Introduction
I will begin with the conclusion – I am not going to provide a definitive answer to the question posed in the title to this paper, although I think that I can do better than one dictionary definition of commercial law as being “Areas of law having particular relevance to commerce and commercial transactions”.[2] I am not concerned about the lack of a definitive answer, because I am not asking the question in the hope or expectation that one exists. Instead, I ask the question because I think that it might prompt some useful reflections and pose some problems which commercial lawyers (however the membership of that ‘group’ is defined), ought to be thinking about.[3]
I should also acknowledge that the question, and its use as a topic for a seminar paper, is not original. In 1997 Justice Roger Giles addressed the annual general meeting of the Commercial Law Association in Sydney with a paper titled “Commercial Law – What is it?”.[4] Justice Giles arrived at the following conclusion:
“So what is commercial law? It’s almost anything. It goes much beyond the regulation of the relationships between merchants and traders, and it goes beyond those parts of the law most commonly associated with business activities in that all major and fundamental areas of law are now commonly associated with business activities.”[5]
This passage suggests a number of things. It suggests that there is a connection of some type between commercial law and business activity. It suggests that the boundaries of commercial law are not easily defined. It hints that this definitional problem may be due to shifting commercial practices, and to shifting legal responses to those practices. This latter idea – that commercial law is in a state of change – has been suggested by a number of commercial lawyers in recent years, and it is these suggestions that have prompted me to ask the question that forms the title of this paper.
Contemporary shifts in commercial law
Over the past twenty years commercial lawyers have been pointing to a number of changes to the substance and practice of commercial law. Necessarily, to talk of changes to, or shifts in, commercial law presupposes some idea of what the core concept – commercial law – consists of. I explore what this core concept might be later in the paper. For the moment I want to identify, without going too far into detailed analysis, some of the shifts that have been identified.
There are no original insights in the construction of this list, and it is not an attempt to catalogue every current development in commercial law. Instead, my purpose is single out, in a brief way, what I see as the more significant shifts that have been identified by others. I do this mainly to highlight some of the definitional problems that are dealt with later in this paper, but it also works as a reminder of some issues that commercial lawyers ought to consider when they contemplate what it is they practice, research, or teach.
(i) A changing menu of commercial law topics
There appears to be general agreement that the list of topics that constitutes commercial law is expanding. In some instances this is due to ‘old’ areas of law being rediscovered. For example, since 1995 corporate lawyers in Australia have had to give renewed attention to the tort law principles of negligence in relation to directors’ duty of care.[6] In other instances, areas that were previously not thought of as commercial law have moved onto the menu. In some instances this reflects changing ideas about process and procedure in commercial practice, as indicated by the growing significance, since the 1980s, of alternative dispute resolution.[7] Clearly it also reflects new developments in the substance of commercial practice. The growing importance of intellectual property issues is one example, perhaps coming to a head in the idea that business methods themselves are a form of intellectual property that can be protected by patents.[8] Similarly, we can point to the designation of e-commerce as an area of research and practice in its own right. The new developments are not limited to the subject matter or mode of commercial transactions. They extend to the range of concerns and expectations which can affect those transactions, for example, questions of social and environmental responsibility, and of fairness and good faith.
The claim that a particular issue or topic represents an addition to the commercial law menu is, and must be, contestable. The example of e-commerce provides an example of such a debate. Professor Goode has expressed some scepticism about the identification of e-commerce as a new and distinct branch of commercial law:
“Whether one is dealing with electronic funds transfer, the dematerialisation or immobilisation of securities or the use of electronic bills of lading, it is necessary to ask why, if the message is broadly the same, its legal significance should be affected by the medium through which it is sent. … Why should electronic transmissions necessitate different rules of law?”[9]
I suggest that this type of debate is useful provided that its object is not simply to guard against disciplinary intruders or to seek disciplinary simplicity for its own sake. These debates should be an occasion for a disciplinary stock-take, to ask ‘what is it that commercial law does and can and should it be done differently?’ For example, does the nature and impact of electronic trading, the assumptions and intentions of the parties to an electronic transaction, warrant a new type of legal response?
(ii) The role of commercial law outside private-sector commercial transactions
Areas commonly thought of as commercial law have begun to spread to non-commercial areas and to areas outside the private sector. Corporate law has long ceased to be solely concerned with regulating private sector business practice, given the ubiquity of the corporate form in non-profit sector, in family financial planning, and in government. On the latter point, processes of privatisation and corporatisation have meant the application and adaptation of corporate law principles to processes of public governance. Similarly, because of governmental reliance on outsourcing, principles of contract law now figure in process of public administration. So, in the current vernacular, we find that commercial law is about transactions that are business to business, business to government, and government to business.
What might this mean? It might mean that commercial lawyers find that they have to re-imagine the context in which they specialise. It might mean that when they are applied in a non-commercial context, commercial law rules, principles and concepts will have to change and adjust by reference to non-commercial considerations. Two examples illustrate this point. The first is found in the sometimes difficult application of general principles of corporate law to entities that are governed by the Commonwealth Authorities and Companies Act 1997 (Cth), such as the need for Ministerial shareholders to receive corporate information from the board, compared with the very limited rights of shareholders in private sector companies. The second example is related to this point - the concept of accountability has noticeably different implications and applications in the public sector than in the private sector.[10] This has been highlighted in concerns that government bodies are relying too often on claims inappropriate claims of ‘commercial-in-confidence’ to prevent disclosure of information.[11] Read together these developments might also point to the gradual emergence of a discernible ‘public commercial law’ jurisprudence that responds to the mixture of private and public frames of reference.[12]
(iii) A shift from rules towards standards
Like many other areas of law, commercial law has witnessed a shift from a primarily rule-based jurisprudence towards a standards-based jurisprudence.[13] The focal point of this shift for commercial lawyers has been the partnering of commercial law and equity:
“it is equity that has provided the foundation for security interests in commercial assets and for the enhancement of the required standards of behaviour in the conduct of business life.”[14]
I do not want to overstate the extent of this shift,[15] but it is clearly apparent as modern commercial lawyers grapple with the scope, relevance and application of concepts such as good faith,[16] fairness,[17] reasonableness,[18] and unconscionability.[19]
This use of standards leads to concerns about the loss of predictability and certainty in commercial transactions, expressed in the idea that commercial parties “are entitled to know where they stand”.[20] It is widely assumed that a rule-based commercial law system supplies this much needed predictability. As Justice Kennedy has pointed out (writing extra-curially) “the clear underlying assumption [is] that the existing common law is itself certain”, an assumption that His Honour points out is easily challenged.[21] Nevertheless it does seem that commercial lawyers prefer an image of predictability, which has been challenged by a standards-based approach to commercial transactions.[22]
(iv) Shifts between statute and common law
Perhaps more than other lawyers, commercial lawyers have a long familiarity with the impact of statutes in their area of work (for example, legislation dealing with the sale of goods, partnership, bills of exchange). And commercial lawyers have, by and large, become used to the newer forms of statutory incursion into commercial practice, such as the Trade Practices Act 1974 (Cth), or the Contracts Review Act 1980 (NSW). More recently there are indications of statutory attempts to provide overarching, complex regulation of commercial activity. A good example of this is can be found in the Financial Services Reform Act 2001.
The interaction between statute and common law/equity raises many questions. Some statutes are intended to supplement the general law, representing only a marginal intrusion into general law principles. Others are intended as substitutes for general law principles (whether through a form of codification or by creating new rules and principles). In the former case, the question confronting the courts is the extent to which the legislators intended to depart from the general law – should the general law principles constrain the interpretation of the statute? In the latter case, there is a question about the extent to which the pre-existing general law principles can and should influence the interpretation of the sections. In either case, where judges turn to general law principles to assist the interpretation of a statute, the following possible effects have been identified:[23]
· the attempt of the statute to reform or abolish the general law may be undermined;
· the effectiveness of remedial provisions in the Act may be reduced; and
· the public interest purposes of the statute may be negated by the influence of private law values.[24]
(v) The rise of codes of practice
Commercial practice in a number of areas is now affected by industry-generated self-regulatory codes of practice or conduct. Without endeavouring to provide a comprehensive list, the following are examples:
· the Australian Bankers’ Association’s Code of Banking Practice (published in November 1993) which “seeks to … promote good banking practice by formalising standards of disclosure and conduct which Banks that adopt the Code agree to observe when dealing with their Customers”;
· the Insurance Council of Australia Limited’s General Insurance Code of Practice for all insurers to promote good relations between insurers, agents and consumers and good insurance practice by describing standards of good practice and service. The Code requires participating insurers to establish internal and external dispute handling procedures and insurers may be penalised if they fail to meet the Code's requirements;
· the Internet Industry Association’s Content Regulation Code of Practice (December 1999), which is approved by the Australian Broadcasting Authority under the Broadcasting Services Act 1992;
· the Credit Union Code of Practice, which seeks to foster good relations between Credit Unions and their Members and to promote fair treatment of members by formalising standards of disclosure and conduct which Credit Unions that adopt the Code agree to observe when dealing with their Members.
Again, it is important not to overstate the significance of this shift towards self-regulation. It does, however, lead to speculation that modern commercial law is beginning to resemble its medieval counterpart – the law merchant. As John Braithwaite and Peter Drahos have observed:
“Private ordering through codes of practice, model contracts, guidelines helped by public coordination and public ordering through codification and conventions helped by private input has produced what some scholars have seen as an evolution towards a new or revitalised Lex Mercatoria.”[25]
I make some further observations about this argument later in the paper.
(vi) Other changes
I have not mentioned what some might think are the most obvious shifts in modern commercial law – globalisation, and the harmonisation or internationalisation of commercial law. These are obviously important influences on what we, as commercial law teachers, researchers and practitioners, do. But my sense is that they do not go to the fundamental question of ‘what is commercial law?’. They certainly put that question onto a much bigger stage, and they do supply some new components to the answer (eg the addition of laws governing international transactions), but they do not, I think, assist in providing answers.
These are some of the shifts and trends in contemporary commercial law. Their significance, in each case, is a matter of debate. Those debates take place against some idea or assumption about what it is that constitutes commercial law. If we are to get the most of those debates, we need to have a clearer idea about how we go about defining commercial law.
Defining commercial law – a question of perspective
Even though I have already indicated my view that no single definition is possible, it is nevertheless instructive to attempt to provide some answers to the question. To do this, I look at three different perspectives from which we might say that we know what commercial law is.[26]
(i) Commercial law is the books we read
The simplest – and least instructive – approach is to take a lead from commercial law textbooks. One of the key contributions of commercial law textbooks has been to establish commercial law as a sub-discipline within law.[27] For the purposes of this exercise, and in order to gauge any shifts in definitional scope (and without any claim to empirical rigour) I take three textbooks as examples – one published at the beginning of the 20th century, one published mid-way through that century, and one with its most recent edition at the end of the century.