and welcome back to contract a this is the third and final video in our week-long series on theory so let's watch into the second video and drum roll well here we have you've been waiting to do something new relational contracting okay my favorite theory my theory du jour if you will the dominant thing here is that contracts are rooted in human relation and as McNeal begins his treatise in a rather biblical sense he says in the beginning was society and he says that this is the most forgotten fact in the modern study of contracts and everybody seems to really lift out of the equation the whole communal side of our life the whole social side of our being and he says we're gonna do that you running into dangerous territory particularly and he has a real bugbear with what he calls neoclassical contract theory which I briefly mentioned when we were talking about classical theory classical theory is kind of been rebooted and reshaped to account for some of the criticisms that have been made of it over the years but it really does rely a lot on economic theory and its idea of you know the rational maximize I'm looking after their own self-interests and if we're all just looking after our own self-interests then you know optimum allocation of market resources will happen and you won't get market failure and that kind of thing minimize and accept if things go wrong lots of exceptions but he says contracts between rational maximizes is not contracted at all that it's just war if you've got a bunch of you know sneaky opportunists that are going a knife each other in the back as soon as they possibly can well really is that what contracts are all about is the only value of contract that of the efficient exchange of resources probably not he says and so let's have a little look at the background relational contracting another one that rose to prominence in the 1980s it had been chuffing around and since Stuart were always working the 1960s and in fact McNeill got going not long after McCall his work at all and and Macaulay was a card-carrying fan of McNeill and I'm sure McNeill had a soft spot for McCall I have put McCoy's preliminary 1960s study on middle point if you're interested in coming over for any of that non-essential by any stretch of the imagination um what what prompted this theory well McNeill was quite dissatisfied with the whole individualism that was inherent in so much of the theory that had gone before like I said particularly ticked off with the whole rational maximum as a thing and here's where it gets kind of interesting most of the other theorists rely on their philosophical view and making a compelling philosophical argument for their theory in a kind of post hoc fashion constructing it all together and McNeill calls himself a casual empiricist and what he says is I haven't just got to come up with this theory and then kind of trying to join all the dots and it swept all of the contractual doctrines into this little you know holding pen what I've done is I've had a good hard look starting with McCall a is earlier work look contracts actually operate in the marketplace what goes on in the real world now McCall a for those of you that haven't read that article I'm this really nice study of some some American manufacturers in the 60s now bear in mind this was a very small small scale study and in one particular industry only and bear in mind it was the 1960s so arguably that seems like reputation and personal dealings and that kind of thing were possibly more important to commerce and the way you did business in those days but often in situations where you have repeat business being sort and a longer term commercial relationship to be built you will have the parties planning the contract far far less and in fact once you've got the contract on foot you've signed off some T's and C's that thing goes in the bottom drawer and the parties proceed to perform roughly according to convention business customs give-and-take handshake not in a wink and a smile and it's all about the relationship if you want that other party to do right by you in the future you're probably going to do right by them right now where you've got the choice between not doing right by them and doing right by them so contracts the actual written form of the contracts really recede into the background and what comes to the foreground is relation okay now Mia will never really set out to devise a theory he was just very interested in conducting a sociological study of the swamp and what happens in the swamp and he really was just observing making a stack of comments on his observations however these comments and those observations just went on and on and on over a period of you know you know more than 20 years and eventually you know people started speaking of it as a theory grudgingly to my mind anyway he started calling it a theory in about 2000 ish what are the most recognized bits of his theory probably that contract formation doesn't happen at one particular point in time as I'm about to tell you in future weeks when a contract is formed offer acceptance you've got the terms being agreed you've got consideration and bingo you hear the sound of the ions being clamped on and the contract is actually binding on the parties now he says that's a bit of a xxx in actual fact what happens is there's a lot of give-and-take negotiation relationship building and gradually you know consent and contract formation actually happens over a period of time the other thing that is his most well recognized contribution is this spectrum or continuum of contract behavior I'll talk about that in just a moment so that's a little background on relational contracting let's have a look at hallmarks okay now I started to lead into this before but the main of hallmark of relational contracting is this notion of a spectrum or continuum and on the one side you've got discrete contracting and on the other side you have a relational contracting at the discrete end you have a number of things that would indicate that your contract Falls towards this end one off spot exchanges McNeil gives the example all buying gas at a gas station okay you have very very little if any interaction and very very little if any probability of that personal intro the repeat business that macaulay for example was interested in in his 1960s work so McMillan says look with contracts like this really discreet end you can almost do the thing and get out of there with whatever it is that you want to get with no no interaction at all because you think about it you rock up to the petrol station you don't speak to anybody you put the petrol in your car it's full you put it back in the thing you go into the petrol station you look at the person they or you might say pump number three you might not you present your card to be debited at the transaction point at the F cost machine and then you leave job done um quite minimalistic in its social relation now there has to be a tiny bit of social relation there because you know as McNeil says you know the discrete contracting stops us from doing things like filling our tank with petrol and you know simply stabbing someone when they come to chases for money there are some implicit rules behind that transaction you know there has to be a bit of shared language between the parties there has to be a system of money there has to be conventions and that kind of thing but very minimal at the discrete end of contracting conversely if you look at the relational sign of things you have contracts that are deeply embedded in relation particularly and as the business which it sure has come to appreciate McNeil when I guess that's where he's really probably had most effect actually rather than in stricter contract more circles and where he was a bit of a prior for many years and particularly at the relational and you'll find complex deals highly uncertain deals and deals that involve this notion of repeat exchange long term relationships now we've got this kind of contract this kind of exchange happening it's interesting McNeil says like McCauley pretty much before him the contract kind of goes into the bond right in fact oftentimes the parties don't even bother too much about the contract terms and conditions it's far more important that the relational aspects are settled and performing well the T's and C's come and drop into the background so at the discrete end where lawyers are probably most comfortable you would have loyally activity in terms of contracts being a flurry of trying to capture every possible contingency that might go wrong that's that's the notion of discrete contracting planning and we called precent iation or fully capturing every contingency in a contract tends to happen where if it's not a discrete transaction that's already got terms and conditions pretty much social like the gas exchange thing but where you're actually sitting down to write a contract at the discrete end of things it's all about the planning because there's almost no trust there's almost no relationship so you got to capture everything on that document it's super important and that's where lawyers come in you know without our kings and our doctrines and we say no you can't negotiate that term because it's not commercially favorable and these contractual doctrine says that you can't do that and you end up with a 20-page document for really what is about a one page transaction relational you tend to approach in a very different manner and the International Association of commercial and contract managers the ia CCM has done a lot of work with the Australian Navy on this because the Australian Navy was having all sorts of bother with delivering on time with its submarine operations and so what they did is they turned to the notion of relational contracting and instead of putting a minor she approach into action where you focus very much on the tease and season and the bargaining and the two and throwing and the adversarial nature of the parties they really focus on getting the relational side of things focused first the relationship operating properly a whole set of processes and systems put in place as to how the parties will deal with each other in the course of performance how they will settle their disputes and clearly defined off ramps for the relationship and that's really what then tends to set the scene for a much more relaxed approach to coming down to the actual terms and conditions of the deal that's on the table so that's relational contracting in a nutshell I hope we can have some discussion about this at the zoom because it's really quite an interesting field and it's one that I'm currently researching at the moment kind of about it looking at criticism of relational contracting there is no no only joking and the main thing I guess is that critics tend to point to it and say oh look at this body of work other twenty thirty we use of MacNeill you know it's this big it's logical most sociological inquiry there's no clear or determinate legal principles that come out of this theory I guess that makes sense because of the way that McNeill went into this whole exercise was you know how can i define legal principle in light of what I'm seeing he just set out to map what was actually happening you know and then it was kind of afterwards that his theory unpacked itself almost as he thought about the ramifications of what he was seeing for contractual doctrine and then he started once he you know it had mapped out this spectrum this continuum he started mapping you know the kinds of norms that would have care where you tended to see your relational contracting occurring interestingly enough you know trust features among this kind of norm the the harmonization of relational trust and keeping each other happy is one of the main norms that comes out of a relational contracting viewpoint so he unpacks to him to about ten different norms that you will see at the relational contracting end of the spectrum so yeah he didn't really have this theoretical approach to start with and there has been some difficulty applying relational theory in practice how exactly do you go about harnessing the insights that McNeil has provided for us and this is where the business literature has tended to focus on these norms that McNeil mapped out contract managers like the membership of the ia CCM you know they've focused on relational contracting as a process how to guide your clients towards a happy conclusion how to get them into contracts that stand a very good chance of working well even though they might be really high value highly uncertain very very complex deals that you can't capture in full and put in every contingency into the contract courts what Accords done with this um interestingly and this kind of puts a nice spin on the videos because you know I said at the very beginning theory can help where you you're at the pointy end of judicial decision making and courts are grappling with how to decide a particular case and particularly as I said in the UK we've had mr. justice Leggett and looking at relational contracting where there are these kinds of long term complex deals on foot that have come before him for a dispute classifying the contract as a relational contract and then being prepared to do stuff in terms of employing terms like the term of like the duty of good faith into the contract and then of course that has implications for how the parties go about their business I've put a couple of articles as I said previously on that and I think that that's probably as good a place as any to stop with relational contracting if you have some queries about it waited night would like to know a little bit more about it please let me know because it's time to explore so that's relational contracting and you know not so quick nutshell um to thought bubbles as I said at the beginning where are we now okay we've had a little look at theory here we are in the legal universe this is really just to say in the terms of grand design and I guess it's time I liked its picture because it kind of reminded me of Steve linking it's like this 3d imaging about closest galaxies and and kind of like it's a nice visual as to how tough it is to develop theory about law and in fact one one theory that I kind of like is that law is like a fractal you know it's constantly changing and whilst there is some pattern you know each little iteration is you know different but we have a number of bodies of law that you need to be aware of and that you'll probably encounter sooner or later if you haven't already contract law obviously is at the center of the universe not really um but for us in this unit is equity is another body of law that we need to know about and that's why I've given you some of the readings from Patterson on the role of equity equity really focuses on the way that it can assist to provide remedies where the common law remedy would be quite hard and we encounter equity in contract me much more so than in contract I so I'm not going to labor at the point have a bit of a read of Patterson just be aware that there are equitable doctrines that can cross contract more that we're going to talk about in the contract be the other main body of law that you had no probably about milk a little bit about and tonight is tort law and you would call that more public law because that's what's imposed on you by the state where contract war is often called private law because that's what parties assume for themselves and and the other body I've got sitting out to the side there is unjust enrichment bless because well unjust enrichment does cut across summer contract law because it underpins restitutionary law again it's something that will encounter your contract maybe it's kind of dark matter you could write many PhDs on unjust enrichment and restitution evil so I've got it hanging off to the bottom there but you'll discover that for yourself when we do contract me so that's where we are in the legal universe we've had a little look at theory we know that law is an extremely complex social phenomenon to think about contract law is a subset of that and more to the point what's going on in this unit and the next one how does it all fit together I can't recall contract either prequel because we do all of the formation stuff and I went through some of this in the intro video but I'll do it again we need to know is there a contract has there been intention to create legal relations is is there capacity between the parties are they of sound mind and know what they're doing is they're offering acceptance and consideration the holy trilogy of contract formation then we need to know how we work out what the terms of the contract are so certainty completeness Express terms implied terms we've talked about implied terms this evening expresses what's on the paper implied is what the court slips in by virtue of various different principles when there are gaps like uni in the contract terms and we need to know how Court will construe terms we need to know a little bit about pretty we also need to know about the Australian Consumer Law because that is the I guess legislative inclusion into our nice little common law a judge-made bubble of law that's generally speaking contract law contract B I call the sequel actually I probably shouldn't call it the sequel because if contract a is the prequel this should just be a cool before we get a sequel but anyway contract be the sequel in contract me we talk about all the things that can go wrong with our nicely formed contracts that we talk about in contract a so you know how it all goes pear-shaped vitiating factors the things that might ruin a contract for us make it vulnerable to our courts in any other side mistake misrepresentation duress undue influence unconscionable conduct Oh naughtiness that goes on we also look at things like estoppel where a party can be stopped from going back on a promise that they made that is a non contractual promise so yeah there's another little thought bubble for you okay estoppel a doctrine that's a reason to drop someone going back on their promise promise the area we've been talking about this evening how much of a bearing does that have on the development of doctrines like estoppel illegality we also have a little look at in contract B and then we look at discharge so have you performed well enough have you breached has the contract being frustrated and frustration again we've had a little talk about tonight then last stop you look at the loot and the other things that you can get for your client and that is contract for us this term and next term if you're going to do them consecutively so that is the notion of theory and where we are in the world at this point if you have any questions queries shoot me an email post up in facebook send me a message tweet me but most importantly ah don't forget mobile and most importantly they do keep in touch and hopefully I will get to chat with you in the week one zooms thank you and I'll see you next time