Introduction

In the 1970s, the comparative fault defense (CFD) in tort law began to spread across the United States, about thirty years after it became prevalent in the United Kingdom. Both legislatures and courts throughout the United States adopted this defense, with the latter applying it in tort cases on a daily basis. Today, few will call for the restoration of the doctrine that preceded it: the contributory negligence defense. That defense enabled courts to either impose full liability on the injurer (when there was no contributory negligence) or leave the burden of harm completely on the victim's shoulders (when there was contributory negligence). The CFD rejects this binary approach to fault, instead allowing apportionment of damages between the injurer and the contributorily negligent victim.

Over the years, the CFD has spread into the contract law of many countries (e.g., Canada, the United Kingdom, and Israel), albeit primarily in cases where a party breached a contractual duty of reasonable care or in cases of concurrent tort and contract liability.

Liability for breach of contract is often described as a form of strict liability, in which the measure of damages is unaffected by the culpability of the breach. However, courts sometimes do award higher damages, under various legal doctrines, if the behavior of the breacher seems especially culpable. When they do, they may describe the breacher's behavior using labels such as willfully, or in bad faith, or fraudulently, or maliciously or, as Dickens once put it, “otherwise evil-adverbiously.”

It is hard to invoke the concepts of “contract” and “fault” in the same sentence, unless you want to echo Justice Holmes's assertion that “the wicked contract-breaker should pay no more in damages than the innocent and the pure in heart.” But that separation of contract and fault is only the official story. An equally true, but quieter, and unofficial story complements the official one. The unofficial story traces the path of fault slipping into contract law through doctrines such as willful breach. Some contract theorists respond to the seeming tension between official and unofficial stories by seeking to impose discipline on their discipline, policing the message to convey a simple, loud, and clear story of strict liability.

There is a widely held view that breach of contract is immoral. Yet it is manifest that legal systems ordinarily do allow breach – the law usually permits breach if the offending party pays damages – and it is a commonplace that breach occurs. Thus, a tension exists between the felt sense that wrong has been done when contracts are broken and the actual operation of the law. This opposition has long been remarked by commentators.

Recently I wrote on the question of when breach of contract should be considered immoral. My primary point was that breach may often be seen as moral once one appreciates that contracts are incompletely detailed agreements and that breach may be committed in problematic contingencies that were not explicitly addressed by the governing contracts. In other words, because of contractual incompleteness, it is a mistake generally to treat a breach as a violation of a promise that was intended to cover the particular contingency that eventuated.

Introduction

The key to the interest in the philosophical foundations of contract – inconstant as it has been in recent decades – lies, I believe, in the relationship between contract and promise. That contract is the legal equivalent of an institution with a full and independent existence outside the law, though perhaps not a source of direct interest in its doctrinal dimensions, means that this branch of the law furnishes its students with a unique opportunity to investigate a certain dimension of the relationship between law and morality.

Introduction

The Puzzle

Is willful (opportunistic) breach worse than inadvertent breach? Is it more wrongful and deserving of a harsher sanction? Strikingly, two opposite views now have a long-standing tradition within contract law, and they have not been successfully reconciled.

Introduction: From Fault to Negligence – and Back

The concept of fault plays a dominant role not only in contract but also in tort. Often “fault” is the equivalent of the term “negligence.” Commonly, its definition is said to track the Hand formula, which compares the burden of precaution (B) with the expected losses, equal to the probability of loss (P) multiplied by the expected severity of the loss (L). Hand's earlier discussion of custom in The T.J. Hooper is often ignored.

Introduction

The Restatement's oft-quoted assertion about the nature of contract liability is one of the most imprecise generalizations ever made about the common law of contract. Numerous scholars have pointed out that, in fact, many notions of fault infuse contract law, ranging from prescriptions against intentional “bad behavior” to assessments of the reasonableness of an actor's behavior in assessing both liability and damages. But while there are, indeed, many “fault lines” in contract, speaking at that level of generality has little analytic purchase.

Introduction

In this chapter, I compare the role of the creditor's (promisee's) conduct in contractual relationships in US and European legal systems.

Law is an inherently normative enterprise, and so it is inevitably concerned with fault. Contract law is no exception. Yet the application of fault to contract law remains controversial. Theories and doctrines of contract law teach that contract law is and should be a regime of strict liability, rather than a fault-based regime. In my view, however, the theoretical and doctrinal justifications for strict liability in contract law are flawed, incomplete, and misleading. They unduly obscure the role of fault in contract law and hinder its effective use.

Introduction

Expectation damages for breach of contract are generally awarded on a strict liability basis. That is, in the typical case, the reason for the promisor's breach is irrelevant. It is often stated that an exception to this general rule occurs in the event of “willful” breach, which is said to justify special damages. The supposed exception has led to a conundrum because every instance of anticipatory repudiation is in some sense willful as is every refusal to cure a deviation from promised performance, yet in only a subset of these cases is the “willful” label attached as a reason for a high damages award. Why then are some, but not all, intentional breaches singled out for condemnation?

Introduction

Anglo-American contract law is said to be a strict liability system, but it could just as well be a fault-based system. Indeed, one can make a plausible case that a fault-based contract law would be superior to the strict liability system. A fault-based system would result in courts enforcing optimal contracts more systematically than they do currently – if courts could implement the system with sufficient accuracy. The disadvantage of such a system is that courts would need to make difficult inquiries and could make more errors. How the advantages and disadvantages balance out is hard to determine.

As many authors have noticed, although Anglo-American contract law is usually called a strict liability system, it does contain pockets of fault. Faultlike notions, such as good faith and best efforts, recur in the cases; and terms are often implied in order to ensure that obligations are reasonable rather than absolute. These doctrines reflect some of the advantages of the fault-based system, and strengthen the theoretical basis for the claim that fault ought to play a role in contract law.

Introduction

As discussed in Chapter 5, the full import of KRG oil and gas law (No. 22) article 54 cannot be accurately gauged without considering the limitations imposed on that provision by the overarching and superior provisions of the Iraqi Constitution. It is one thing to speculate about the significance of the article 54 references to “final[ity]” and “related to” or “in respect of,” and about the chances that the article's reach encompasses third-party contractual arrangements that assist the IOC in meeting its obligations with the KRG. It is entirely different, however, to begin to “wrap one's mind around” the exact scope of any KRG assertion of power under article 54 in light of the various limitations found in the terms of the Iraqi Constitution on all exercises of governmental power, whether at the central or subcentral level. The easiest way to conceptualize this entails recalling the article 54 claim to vest the Regional Council with the authority to review and alter all preexisting agreements related to PSCs entered into by the KRG prior to August 2007, and its pronouncement that authorizations and MOUs related to oil and gas entered in that period are deemed null and void. The obvious thrust of that article is to affect preexisting oil and gas legal arrangements in one way or another. Whether that objective is capable of unfettered effectuation, however, hinges on the presence of constitutional protections designed to preserve rights incident to contractual obligations.

In the preceding parts of this study, attention is focused on two distinct matters. First, describing the current factual situation regarding the $50 billion to $70 billion of potential outstanding claims against Iraq (as modified by the late 2009 Chinese debt-for-oil agreement, and any possible others not receiving extensive coverage by the new media) and assessing the argument that such claims remain beyond recovery under the theory of “odious debt.” And second, summarizing the controlling legal principles affirmed and extended in Security Council resolution 1905 (December 21, 2009), and its immediate predecessors, resolutions 1859 and 1790 as well as those set forth in article 141 of the Iraqi Constitution and article 54 of the KRG oil and gas law (No. 22) – all of which aim to establish on the international and domestic Iraqi level a measure of legal insulation from claims associated with oil and gas activity in that country. Part Three builds on the preceding chapters by mining more deeply and offering an examination and analysis of several specific legal issues that will certainly emerge and prove especially nettlesome in the context of pursuing claims for debt recovery related to oil and gas activities. The previous discussion about resolutions 1905, 1859, and 1790, and articles 141 and 54 illuminates the background concerning relevant legal considerations. However, only in sedulously critiquing what those relevant legal provisions decree in the context of specific factual situations can a more complete understanding of the precise dimensions and implications of the law be approached.