The oppressor’s wrong, the proud man’s contumely and the eight hundred pound gorilla
Download 113.95 Kb.
|
|
A fiduciary is subjected to legal obligations dealing with what may be called integrity. One of those obligations is to act in good faith. You have to see this obligation in its context. The main duty of the person in a position of trust is to put the interests of the other person over their own. I do not become subject to that obligation when I go into Myers to buy a hanky, but I do if I take a job with them. The duty of good faith includes then a duty to be honest and fair in my dealings with them, and to be loyal to them, at least in the sense of not working against their interests. So, a lawyer who has acted for a client for a long time may be restrained from acting against it, and employees may be restrained from using their spare time to set up in competition with their employer. Three observations may be made on this duty of good faith placed on people in positions of trust (what the law calls fiduciaries). The obligation is for the most part not imposed by the law in most commercial contracts. This obligation arises from a head of our law called equity, and it has different legal attributes to obligations arising under the common law properly so called. Finally, the obligation of good faith tends to be one way – it tends to be the persons in positions of trust who have to behave so well in this fashion, and not the other party who is the one putting their trust in another, although there is no hard and fast rule. We can follow the logic of this with, say, a lawyer and client. The client has to be confident that their lawyer is being straight with them, but if the client wants to play games, that is their lookout – at least, some would say that. But should this be so with an employer and employee? If the employee has to be candid and straight with their employer, why should not they be able to expect the same in return? Take it a bit further. If the employee has to be loyal to the relationship and the employer, why should not the same apply in return? If the employees can be restrained from working in secret against their boss, why should not the staff be able to claim the same protection if they find out their boss is secretly planning with someone else to get rid of them? Even the most basic feudal relationship worked both ways – I look after you, and you look after me. We have the best authority for saying ‘Vassal homage was a genuine contract and a bilateral one. If the lord failed to fulfil his obligations he lost his rights.’ Do employees under our modern law of employment get less protection than feudal vassals in the middle ages? Or is this hunger for mutual obligations too simple and not subtle enough for our modern laws of industrial relations? In any event, is the employee more in a position of trust than the employer? The employee has access to trade secrets, the till, customer lists, facts of history that would be better kept indoors, and so on. But for very many employees, the employer holds a power of life-altering if not life-threatening dimensions. Is there a difference between one-off transactions and continuing relationships? Are we again blind-sided by the label and not trying to analyse what the relationship itself entails? Or is there to be a dichotomy between a position of power and one of trust, and one that appears to leave the employee out in the cold? VII
GOOD FAITH – INSURANCE Much of our commercial law, and almost all of our insurance law, started with Lord Mansfield and his commercial advisers from the City of London and his Special Juries. Mansfield thought nothing of having a juror home to dinner to discuss the finer commercial points of a problem, even a juror sitting on a case at hand. His Lordship spent much more time out of court with people from the City than with sad old judges or younger lawyers on the up. That is one of the reasons why he is far and away the best commercial judge that the common law world has seen. Another reason is that he got through the business of his court in a business-like way. His clearance rate has never been rivalled, and he accepted that he had to keep his judgments to the point, and understandable by those who had to live and work with the law. In Carter v Boehm, heard in 1766, the plaintiff, Mr Carter, took a policy of insurance from Mr Boehm for the benefit of his brother who was the governor of a fort in Sumatra. The policy was against the loss of that fort to the French. The French duly seized the fort, but the claim under the policy was denied. The underwriter said that the insured had failed to disclose matters known to them that were material to the risk of loss of the kind insured against. Mr Carter had two letters from his brother, the governor of the fort, dealing with the vulnerability of the fort to attack by European powers. The ‘fort’ was in truth just a factory, only built to be defended against the ‘natives’, and ‘governor’ was just a commercial title. In cross-examination, the broker said that he did not think that the underwriter would have ‘meddled’ with the insurance if he had seen the letters. The plaintiff obtained a verdict from a special jury at Guildhall. On a challenge to the verdict, Lord Mansfield found against the underwriters. In the course of his judgment upholding that verdict, Lord Mansfield said: …..insurance is a contract upon speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the insured only: the underwriter trusts to his representation….The governing principle is applicable to all contracts and dealings. Good faith forbids either party by concealing what he privately knows to draw the other into a bargain from his…believing the contrary. The Court found that the condition of the fort, which was in reality a factory, was ‘in general well known by most persons conversant with or acquainted with Indian affairs’ and public knowledge to anyone who sought to inform themselves. His Lordship thought that the underwriters were in a better position to assess the fort than the governor himself had been, and that a verdict for underwriters would have turned a rule against fraud into an instrument of fraud. Notwithstanding the decision against the underwriter, which is almost never referred to when the case is cited, Carter v Boehm is the foundation stone of our law of the duty of disclosure in insurance law. The case stands for the proposition that in at least one class of commercial dealing, where one party has to put trust in another because the knowledge of so much relating to the commercial prospects of the proposed dealing is available only to that other party, the law says that the parties are bound to show good faith to each other, and that that obligation may extend to a positive duty on one party to make disclosure to another of facts peculiarly within his knowledge relating to the commercial prospects of the venture. By the teaching of the common law of contract, that is potentially a very far reaching proposition. What if a farmer wants to borrow from his bank in foreign currency? The bank will know, somewhere or other in its hierarchy, far more about the risks of borrowing in foreign currency than the farmer. Is there a duty of disclosure of such factors affecting risk on the bank? Or are they the kind of matters known in the market generally and not within the peculiar knowledge of this particular bank? Well, you would think the latter was the case, but more than twenty years ago, very many cases gainst banks by farmers who had been induced to borrow in Swiss francs were fought or settled on an unstated premise of a duty of disclosure. So far, the doctrine has been confined, at least for the main part, to insurance contracts, and the courts have also been reluctant to see a breach of this implied term give rise to a right to claim damages – the only remedy has been thought to have been avoidance of the policy. This part of our law dealing with obligations of good faith is now covered by statute. There is not nearly as much law dealing with the obligation of the insurer to act in good faith. One aspect was dealt with by the High Court in part of the Thalidomide litigation in Australia in a case involving how a claim should be settled where the liability of the insurer was capped. In Distillers Bio-chemicals v Ajax Insurance, Stephen, J found that there is ‘an implied obligation imposed upon the insurer to have regard to more than its own interests.’ The insurer must act reasonably and in good faith and in the interests of the insured as well as of the insurer. This duty of good faith and fair dealing must control the actions of an insurer who has taken over the defence and also the exercise of its power to grant or withhold consent to the making of admissions, even if it elects not to take over the defence. If the obligation of good faith is seen as requiring a party to have regard to more than its own interests, the obligation resembles that of a fiduciary, and distinguishes this kind of contract from one to be performed at arms’ length. VIII
A DUTY TO BE HELPFUL – AUSTRALIA In Mackay v Dick, a contract for the sale of a digging machine was subject to a condition precedent that it should on test be shown to be capable of excavating a given quantity of clay in a fixed time at a defined site. The rights and obligations of the parties were each defined by the test. The buyer did not co-operate in carrying out the contractual test by providing the necessary facilities for the test but purported to reject the digger nevertheless. The seller sued for the price and obtained judgment. Lord Blackburn said: ‘If it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.’ In Australia, Sir Samuel Griffith expressed the rule as follows: ‘It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other to have the benefit of the contract.’ Putting to one side whether the process is construction or implication, he duty might be described as one of cooperation, or as an obligation to try to make the contract work, or at least not try to make it worthless. One party should not be allowed to engineer the frustration of the contract. There is a range of views on how this works, but it seems to be accepted that the court will imply a term giving rise to ‘a duty to afford the other party the benefit of what he has contracted for, not a duty to act generally in the other parties best interests.’ The latter would distinguish this duty from the fiduciary’s obligation to act in good faith, but to what extent might this implied duty be different in substance from a civil code contractual obligation of good faith if that obligation were to be translated as one to be loyal or faithful to the original promise or the agreed objective, or to act in accordance with the spirit of the agreement? IX
In The Kirke La Shelle Company, Appellant, v. The Paul Armstrong Company et al., Respondents (1933) 263 N Y, 79; 188 N E, 163, a company owned rights to a play called ‘Alias Jimmy Valentine’ based on an O Henry novel. The silent picture rights had been acquired by MGM before ‘talkies’ had become a commercial proposition. The plaintiff made an agreement under which the defendant agreed to hand over ‘one half of all moneys you are entitled to receive from any revivals of the play’. The defendant also agreed not without the approval of the plaintiff to enter into any contract ‘affecting the title to the dramatic rights (exclusive of motion picture rights).’ The defendant later sold talkie rights to MGM for a lot of money without getting approval from the plaintiff. The plaintiff sued to recover half the receipts from the ‘talkie’ sales and lost. On appeal, the Court of Appeal of New York reversed the decision and found for the plaintiff. The court held: (1) the agreement did not in terms deal with ‘talkies’; (2) the agreement made by the defendant for the sale of ‘talkie’ rights affected the title to dramatic rights and was therefore made in breach of the original contract between the parties; (3) the effect of the contract was to put the defendant in a fiduciary relationship which imposed a duty of good faith; and (4) the express agreement not to enter into any contract affecting the title to the dramatic rights gave rise to an implied obligation to hold profits resulting from the breach of agreement for the benefit of the plaintiff. The court did not articulate the finding of a fiduciary duty, but there had been a transfer of rights on terms that the defendant had to account for profits for dealings outside of the knowledge and control of the plaintiff. Nor did the court canvass whether the same amount could have been recovered as damages, or on a claim for an account of profits. (The law of restitution then would not have allowed such a claim.) On the merits, once the court found that the ‘talkie’ deal affected the title to dramatic rights, and was therefore in breach of contract, the only real question was how the defendant could resist paying up something – the price of approval would doubtless have been the return of 50% as laid down in the agreement. But the court did look at other cases and it did in terms adopt the ‘the principle that in every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing’. In its conclusion, the court referred to ‘an implied obligation on the part of the respondents not to render valueless the right conferred by the contract.’ The caption of the law reporter is a more cryptic ‘obligation not to frustrate.’ An obligation not to make valueless the right conferred by a contract may be just another way of talking of an obligation to preserve the benefit of the right conferred by a contract, but sometimes the obligation seems to have more bite or application when expressed negatively. ‘You must not act in bad faith’ might to some be clearer than ‘you must act in good faith’ even if logic says that there is no difference. The courts in the U S had been used to implying terms that the parties would be obliged to act in good faith as part of an obligation to help make the contract work. Section 1-304 of the Uniform Commercial Code provides: ‘Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement’. Section 1-303 makes provision for a course of dealing and trade usage. What is required is honesty and the observance of reasonable commercial standards. Roscoe Pound was fond of a very broadly expressed law in Article 5 of the Fair Trade Commission Act: ‘Unfair methods of competition are hereby declared unlawful.’ The French might have found it hard to shorten that in 1789.m In some jurisdictions in the U S, a breach of the implied obligation of good faith is regarded not just as a breach of contract, but an actionable wrong, or tort – for which punitive damages may be claimed. There is in some courts an action called insurance bad faith. Some courts have imposed liability in tort ‘when the insurer unreasonably and in bad faith withholds payment of the claim of its insured.’ Attempts have been made to extend the ambit of corporate defendants beyond insurers, but Californian courts have refused to extend the action to employers or banks. In one case, the Supreme Court of California referred to the rationale for tort liability against insurers acting in bad faith. ‘As one commentary has noted, 'The insurers' obligations are ... rooted in their status as purveyors of a vital service labelled quasi-public in nature. Suppliers of services affected with a public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements. ... [A]s a supplier of a public service rather than a manufactured product, the obligations of insurers go beyond meeting reasonable expectations of coverage. The obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary.'’ This Californian rule about the liability of insurers to damages for acting in bad faith to their insured to deprive them of the benefit of their insurance cover therefore had a similar rationale to the medieval common law that imposed a strict form of liability on innkeepers and the medieval cab drivers – they were suppliers of an essential public service that could not just be left to do as they liked. Just as we say that some banks are too big to fail, so some businesses are too big and too important to be left to do as they please. The Court did however find that a liability of insurers based on their special relationship should not be imposed on the employment relationship generally. The potential effects on an individual caused by termination of employment arguably justify additional remedies for certain improper discharges. …The issue is how far courts can or should go in responding to these concerns regarding the sufficiency of compensation by departing from long established principles of contract law. Significant policy judgments affecting social policies and commercial relationships are implicated in the resolution of this question in the employment termination context. Such a determination, which has the potential to alter profoundly the nature of employment, the cost of products and services, and the availability of jobs, arguably is better suited for legislative decisionmaking. Well, doubtless the court was correct in saying that the employment relationship is already subject to so many layers of legislative and industrial intervention that courts might be slower to intervene to fill potholes than in other types of contractual dealing. X
In the English case of Malik v BCCI, a high-flying financial business was run in a completely fraudulent way. When it failed, as it had to, the publicity and the losses were huge. Employees found it hard to get work because they had been working for a disaster run by crooks. That kind of damage is very recognizable. They sued the company in liquidation claiming that the dishonest conduct breached an implied term of their contract. The dishonesty was flagrant and the damage done was great. The liquidators agreed to the case being dealt with on a procedural ground and on agreed facts. Judges should not agree to this – they may as well give judgment on Mr Darcy in Pride and Prejudice. In the result, there is room for discussion about just what the case of Malik decided, but for more than fifteen years in Australia it has been cited in or by courts as authority for the proposition that in employment contracts there is an implied term binding the employer not to conduct itself without reasonable and proper cause in a manner likely to destroy or seriously damage the relationship of trust and confidence between employer and employee. On that ground, the stigmatised employees had a big win. The contractual term is confined to employment contracts, which are seen to be important enough in the life of most people to warrant such a term in a part of the law affected by great social changes since the pre-automobile stage of master and servant. But, because of an old English case denying damages for loss of reputation caused by a dismissal, the decision was not said to affect such cases. And, because of the way that the case was fought, there was no real analysis of the criteria for implying such a term. Well, at least some of the obligations unhelpfully described as ‘fiduciary’ now appeared to go both ways in employment contracts. In CBA v Barker, Mr Barker, after giving long service to the bank, was told that he would become redundant at the expiry of his period of notice. The bank had various policies in place for redundancy, but these were found not to have formed part of its contract with Mr Barker. The court did however find that the bank had not done what it could and should have done to secure further employment for Mr Barker. The bank had appeared to act in a peremptory fashion, and, as happens in big companies, the right hand did not know what the left hand was doing. The bank was found to have breached an implied term of mutual trust and confidence in the employment agreement by failing to take proper steps to re-employ Mr Barker. His damages were assessed at more than $300,000, being the loss of a 25% chance of gaining the remuneration from re-employment. A majority of the Full Court affirmed the judgment, holding that an intermediate appeal court could agree to follow the English approach. The matter has now been argued before the High Court. It will presumably deal with two matters found by Justice Jessup in dissent. His Honour said that the relevant obligation of fidelity only went one way and that mutualisation was not of itself a reason to imply the term. More fundamentally, his Honour did not think that any such term was necessary in the contract in the sense that without it the contract was ‘worthless’, ‘nugatory’, or ‘seriously undermined.’ Whatever the High Court decides, it looks like for our purposes, the law will stay fragmented and wanting coherence – either, a refinement only to one kind of contract will be made, and subject to a tricky exemption, or that mode of growth will be choked off, and the employment relationship left lop-sided on obligations of fidelity. XI CHICANERY AND SHARP PRACTICE As we have seen, Article 138 of the German Civil Code is as follows: (1)A legal transaction which is contrary to public policy is void. (2)In particular, a legal transaction is void by which a person, by exploiting the predicament, inexperience, lack of sound judgement or considerable weakness of will of another, causes himself or a third party, in exchange for an act of performance, to be promised or granted pecuniary advantages which are clearly disproportionate to the performance. This provision might be described as a prohibition on exploitation. It resembles the common law doctrine of undue influence or unconscionable dealing, but it is clearly wider than the former. Professor Wieacker gave a refreshingly simple explanation. He said that it had ‘originally been designed only to preserve general morality and keep the rules of the game clean.’ Section 226 contains the prohibition on chicanery (Schikanerverbot): Directory: 2014 2014 -> For want of a nail 2014 -> The Global Warming that Wasn’t 2014 -> Assembly, No. 3901 state of new jersey 216th legislature 2014 -> Stop Militarizing Law Enforcement Act of 2014 2014 -> Ihbb asian Championships 2014 middle school bowl Round 4 First Quarter 2014 -> Unit: Automotive and Auto Body 2014 -> Ihbb european Championships 2014 Bowl Round 4 First Quarter 2014 -> International History Bee and Bowl 2013-14 Asian Division Question Set Bowl Round Six 2014 -> United states patent and trademark office 2014 -> Walnut creek, ca branch executive committee meeting minutes Download 113.95 Kb. Share with your friends:
|