This is an un-footnoted manuscript version of my review, forthcoming in the Journal of Contract Law (with the footnoted version available at http://ssrn.com/abstract=2557209), of:
Long Term Contracts, Kanaga Dharamananda & Leon Firios (eds)
Federation Press, Sydney, 2013, ISBN 987 186287 915 7, xxxviiii + 419pp, A$225.
The volume, derived from a conference held in Perth in 2012 and edited by a senior counsel with a junior solicitor from Western Australia (WA), adds a useful combination of theoretical and practical papers to the growing literature on long-term contracts (LTCs), especially for Australian and other common law jurists. With a focus on resources and energy contracts, the book is a welcome in-depth addition to more commercially-orientated publications on the subject. It is particularly topical given attempts by buyers in countries such as Japan, which takes 75% of Australia’s exports of liquefied natural gas (LNG), to renegotiate its long-term supply contracts with Australian sellers.
A brief Foreword by the Hon William Gummow AC and the editors’ general Introduction (pp 1-3) are followed by eight “chapters” – in fact, parts, comprising brief further editorial introductions and then 1-3 papers each (each preceded by helpful “key points” or abstracts). The Chief Justice of WA provides a succinct Conclusion outlining “the history and destiny” of LTCs (pp 347-53), which could well be read first. The book ends with “Sample Clauses” (often preceded with helpful summaries) for price adjustment (pp 354-68), changed circumstances (pp 368-72) and force majeure (pp 372-98), predominantly from model forms or reported case law related to resources contracts. The mostly Australia-based contributors include 4 (ex-)judges, 2 barristers, 12 solicitors (almost all based in Perth), 4 other professionals, and 2 professors (in the UK and the USA). The 8 chapters or parts are divided as follows, although there are some significant overlaps:
• commercial considerations;
• drafting;
• duties and liabilities;
• state agreements;
• frustration and force majeure;
• competition law;
• remedies;
• dispute resolution and enforcement.
The editors’ Introduction does not attempt to define a LTC, instead referring (at p1) to the President of the Court of Appeal of WA who writes later that no definition is needed because you “know one when you see it” (an assertion which can be found at p116). Yet, when later introducing “chapter 1” on “Commercial Considerations”, the editors in fact outline, for example, “common features” typically found in LTCs, including (at p6, citation omitted):
(a) terms as to duration;
(b) flexibility in performance;
(c) discretions (often coupled with good faith or reasonableness obligations );
(d) non-linear pricing structures;
(e) terms governing the disclosure of information;
(f) dispute resolution mechanisms; and
(g) rights governing termination and remedies (for example, liquidated damages).
Further, in their general Introduction, the editors sketch “three central concerns affecting the formation, construction, and operation of long term agreements”. One is the challenge to contract law doctrines caused by the complexity of LTCs of long duration, although the editors suggest those doctrines remain valid – just “harder to apply” (p1). The second is that parties and legal advisors have typically had to craft their own contractual provisions (such as force majeure clauses) to try to anticipate and provide for the extra legal problems created by LTCs. The third concern identified by the editors is that LTC negotiations as well as drafting tend to become very complex.
Given the transaction costs associated with those second and third concerns, it would have been interesting to read what the 24 contributors to this book think about the federal Attorney-General Department’s project for a “Review of Australian Contract Law”, mooting the possibility of reassessing fundamental doctrines. Although not mentioned in this volume, its Discussion Paper (released in April 2012) specifically mentions “elasticity” as one of ten possible “drivers of reform”:
Introducing increased elasticity into the law may help support relational contracts; that is, long-term contracts which support successful continuing relationships. Many contracts involve complex projects which rely on cooperation between the parties over a significant period of time. The use of flexible, gap-filling concepts like good faith, reasonableness or adaptation for hardship may be needed to help these contracts work as time passes and circumstances change. Debate about these concepts also raises arguments that the principles are too ‘fuzzy’ and may undermine certainty and predictability of the law.
Several public Submissions responding to that Discussion Paper are critical of existing legal doctrines for long-term contracts, such as franchise contracts. However, despite other Submissions agreeing that Australian contract law is ripe for at least some degree of law reform, others considered that its basic doctrines remained essentially sound, and the Government has certainly not followed up with any more concrete proposals. By contrast, for example, Professor David Campbell in this volume (pp 201-5) draws on the richly empirical and normative theory of relational contracts developed by Ian Macneil to sharply criticise not only the common law doctrines of frustration and common mistake, but also the supposed “work-arounds” envisaged by conventionally drafted force majeure clauses. Indeed, even the voluminous LTCs for LNG supplies from Australian companies are now leaving headaches for legal advisors in the wake of market upheavals related to the influx of shale gas from North America, with respect to hardship and price review clauses (discussed generally by Michelle Cole and Sharon Wilson at pp 44-51 of this volume).
Most chapters pay particular attention to long-term resources contracts, which is unsurprising given the importance of the resource sector for the Australian economy and especially WA. However, some authors do refer briefly to other types of LTCs, such as franchises – with (former) Justice Paul Finn, describing them as often involving “asymmetric power relationships” (p136) in his insightful discussion of “fiduciary and good faith obligations” under LTCs). Distributorships often represent another example of such relationships, generating major international as well as domestic litigation in Australia, but are not focused on in this volume.
Arbitration agreements, typically added to LTCs especially in cross-border contexts, can themselves be seen as LTCs or at least relational contracts, bringing in the arbitrators (once appointed) and also often now third parties from increasingly complex webs of contractual relationships. In the part of the volume dedicated to “Dispute Resolution and Enforcement”, Lucy Reed provides legal perspectives on choice of law provisions as well as commercial and investment treaty arbitration, Stephen Boyle discusses arbitration under LTCs with a focus on recent Australian developments, and Mark Darian-Smith adds some brief “practical perspectives on dispute resolution and enforcement”. But arbitration crops up in several other chapters, including in that by John Southalan on Australia’s intriguing “Parliamentary-ratified [sic] Agreements in the Resources Sector” (particularly at pp 180-3). This begs the question of arbitration’s own “history and destiny” (to borrow from the concluding words of the Chief Justice of WA). In particular, is it too becoming too formalised and “over-lawyered”, divorced from the real needs of contract or treaty partners?
This volume also usefully incorporates some comparative law perspectives, but again could have gone further. Before Chris Lockwood’s general description of Chinese perspectives on LTCs, Rupert Lewi discusses Japanese perspectives. The latter are particularly important from an Australian standpoint given that Japan was until recently Australia’s largest trading partner, especially for resources, and because the design of LTCs (especially for coal) involved various idiosyncratic elements that have framed negotiations – at least initially – with newer partners in Asia. In particular, Japanese buyers tended to take small equity stakes in long-term energy projects in Australia, partly to avail themselves of shareholder rights in order to better negotiate and manage LTCs. Corporate law can also therefore be relevant to a full understanding of LTCs (in addition to other fields such as competition law, which are well covered in this volume’s chapters by Francis Douglas QC and Colin Lockhart.) Levi’s discussion of Japanese law would have also benefitted from reference to more recent empirical studies into the contemporary attitudes and practices of Japanese parties to LTCs in general, as well as initiatives underway officially since 2009 to comprehensively reform the contract law provisions of the venerable Civil Code.
In addition, although LTCs for resources from Australia are typically expressly governed by Australian, English or New York law, other types of LTCs – and especially individual shipments under them – may implicate international instruments such as the 1980 UN Convention on Contracts for the International Sale of Goods, acceded to by Australia in 1988 and by Japan in 2008. The lack of discussion of this Convention in this volume, and only passing references to other significant instruments such as the UNIDROIT Principles of International Commercial Contracts, arguably reflects a broader lack of awareness or interest in such international developments among Australia’s legal profession.
Overall, however, this book covers well the main issues of law and practice raised by LTCs, especially for Australian and common law practitioners. The editors, primarily through their introductory notes, have worked diligently to integrate the numerous contributions. A major problem remains the inadequate Index, which does not attain the high standard characteristic of Federation Press, and yet is particularly important for a conference volume like this. For example, the entry for “relational contracts” only refers to the editors’ brief description (at p5), and not the discussion by David Campbell. The Index’s entry for “frustration and force majeure” refers to pages in the chapters by Campbell and Patten, as well as the “Sample Clauses”, but not to the discussion of frustration by Barry Irwin in his paper on “Getting Out: Termination” (at p70) or John Kelly’s discussion of force majeure clauses (at pp 105-7) in the book’s part on “Drafting”. Nor is there a cross-reference to the entry on “changed circumstances”, which moreover does not include a reference to Lewi’s discussion of the doctrine of changed circumstances under Japanese Law (pp 19-20) which is partly analogous to frustration. As a final example out of many, the entry on “specific performance” does point the reader to Irwin’s somewhat optimistic discussion with respect to LTCs (especially at pp 76-77), but not the more pessimistic view presented by the Chief Justice of WA (at p 351). Hopefully, the editors and authors enjoy a relational contract with Federation Press that will evolve to include a further edition (perhaps in more affordable soft-cover format) with a much more professional Index for the discerning reader.
Bibliography:
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