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

Chris Himsworth

  1. INTRODUCTION

A few years ago, two distinguished public lawyers offered their perspectives[1] 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 Courtcase of Braganza v BP Shipping Ltd[2] (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, stillpresenting 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 theBraganzadecision (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.

  1. 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 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 Beatson[7] 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 initiallybeen treated as unfettered.[10] She went on, however, to trace cases[11]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 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 on[18] 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 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]

  1. 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 widow[22]) 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 ofAssociated Provincial Picture Houses Ltd vWednesbury Corporation(‘Wednesbury’)[27]should be deployed; and that this should involve not only the (more extreme 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 specifically[29] that she understood that she and Lord Neuberger[30] 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 Ltd[36]. In his view, neither the conclusions nor the 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]

  1. 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 wellsettled and wellunderstood, 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 contracthas a clear conflict of interest. That conflict is heightenedwhere 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 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 revealan 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 Wednesburyunreasonableness, 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 thusguided by objective criteria. ... LawsLJin 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 entirelyobjective criteria of reasonableness the decision-maker becomes the court itself.’[45]