Lecture 1. Introduction: Contract & Regulation
In this first session, we will deal head-on with the interplay between contract and
regulation. As you are all familiar with, contract law is at the heart of the domain of private
law and is concerned with the creation and consequences of enforceable agreements
between private individuals. Regulation, as it is oftentimes perceived, is something that is
developed and enacted by state authorities to enhance the functioning of markets in goods
or services. It therefore belongs to the realm of public law. As we will see in this session,
contract law (and the contracts it recognizes to be enforceable) may be seen as regulatory in
itself. At the same time, contract law is also infused by public law regulation in an effort by
state authorities to promote fairness, distributive justice or other policy goals in specific
economic relationships, including employment and business-to- consumer relations. By
focusing in this session on the interplay between contract law and regulation, we will come
to lay out some of the conceptual groundwork of the materials we will study in the next
weeks.
Learning goals
After this meeting, you should be able to:
Understand the basic concept of regulation;
Discuss the concept of regulation in relation to contract law;
Understand and explain why there are various regulatory instruments that can
be used to influence the behaviour of persons and achieve policy goals; including
those based on behavioral law and economics (e.g. default rules, framing and
other choice architectures).
Materials
Mandatory reading
Hugh Collins, ‘Regulating Contract Law’, in Christine Parker et al (eds), Regulating
Law, Oxford University Press: Oxford 2004, pp. 13-32, available
via Worldcat (Links to an external site.).
o After logging into Worldcat via your TiU student account, copy in the
search form the following: COLLINS, Hugh, « “Regulating Contract
Law”. You will then see the edited book as the first result. Click on
eBook and then select Chapter I. Once this opens, you can read the
chapter in original PDF print, which is more enjoyable
Cass R. Sunstein & Richard. H. Thaler, ‘Libertarian Paternalism Is Not an
Oxymoron’, 70 University of Chicago Law Review (2003), p. 1159-1202,
available here (Links to an external site.).
Preparation
After reading the mandatory reading materials, think about how you might answer the
following question: How does the concept of ‘libertarian paternalism’ as described by
,Sunstein (Harvard) and Thaler (Chicago) fit into the frame Collins (Oxford) sketches for
regulating contract law?
Lecture 1
What is regulation?
- Rule-making, monitoring, enforcement
- Process-based and goal-oriented
- Invites questions on effectiveness: when does the regulatory process lead to the
attainment of the goal?
- Many approaches (theories) exist
- Applied before the law
Regulatory regime
Elements Biology: fever Economics: price Sociology: TLS Zoom
decency sessions
1. Standard (rule) 37 C Offer/demand No nose Netiquette
picking
2. Information Receptors Market Peers
gathering participants
(monitoring)
3. Behavioral Immune Choice Group
change system pressure
(enforcement)
Regulatory regime
- What about contract law?
- What goals does it have?
o Conventional view: libertarian
o Regulatory view: distributive justice or social welfare
- Collins (2004)
- Sustain & Thaler (2003)
Elements Contract law
1. Standard (rule) Pacta sunt
servanda
2. Information The parties
gathering
(monitoring)
3. Behavioral Create legal
change certainty
(enforcement)
Contract (law) and regulation
- Collins (2004): ‘’Contract law cannot be seen as facilitative only’’
o Distributive justice (optimize social welfare)
, E.g. mandatory rules on informatory disclosure
o Strategic litigation
o Purposive legal reasoning
Understanding contract law as a regulatory mechanism invites new
questions for research and practice
Three views on interplay
1) Contract law as regulation
2) Contracts as regulatory tools
3) Contract law being regulated
- Collins (2004), Sunstein & Thaler (2003)
1)Contract law as regulation
- How is contract law regulatory?
- How does contact law act as regulation for parties that want to contract?
- Defines rules on:
o When is there a legally enforceable contract?
Carlill v Carbolic Smoke Ball Co. (1893)
o Who may contract? (legal capacity, agency)
o What is contracted for? (interpretation, gap-filling)
o What happens in case of non-compliance? (remedies for breach)
2)Contracts as regulation?
- Contracts as a means of regulation
- Contracts regulate the obligations between the parties
o Self-regulation at the micro-level / private ordering
‘’Contracts as statutes’’
o Freedom of contract / pacta sunt servanda
- Certain type of contracts
o Commercial, General Terms & Conditions, Long-term (relational)
- Both public and private actors
- Example: Global Value Chains (meeting 6 and 7)
- Contracts as a means to regulate supply chains
- The limit of contract to bind third parties
- Mechanisms to resolve this
- Example: Advanced Purchase Agreement (APA) between the European Commission
and Astrazeneca
3)Contract law being regulated
- Contract law as a subject of regulation
- How can it better deliver on goals of fairness and justice?
- State intervention
o Public laws introducing, adjusting or removing contract law rules
- Why is state intervention needed?
o Power imbalance/positions of dependency
o To resolve market failures, in particular information asymmetry
- Examples: from labour law
, o Minimum wages
o Collective bargaining rights
o Job termination
o Work safety
o Social security
- But what about new ways of organizing labour?
o Platform workers, the ‘gig economy’, etc.
- Examples from consumer law
o Information disclosure rules (contact details, qualities product, payments)
o Unfair commercial practices (misleading and aggressive practices)
o Unfair terms (plain intelligible language)
- But what does this all assume to effectively protect consumers?
o Rational behavior are we all so rational, in each transaction?
o Time, access to, and knowledge and skills to assess
Limits to the information paradigm
- The information paradigm is not enough to achieve that people choose what is in
their best interest
- Sunstein & Thaler (2003)
o Infusion of economic theory by insights from psychology
- Behavioral (law &) economics
Choice architectures
- Nudging: e.g., putting food at eye level
- Biases and heurists (short-cuts) influence how people process complex information
and make (ill-)informed decisions
o Bounded rationality
o Bounded self-control
- Best to direct them to the optimal choice for their own welfare
- ‘’Default rules’’ opt out / opt ins
o No pre-ticked boxes for additional payments (EU Consumer Rights Directive)
o Cooling-off periods for consumer sales (EU Consumer Sales Directive)
Fit with three perspectives on contract & regulation?
- The University of Chicago Law Review
- Libertarian Paternalism Is Not an Oxymoron – Cass R. Sunstein
Assignment
I would like you to study the Advanced Purchase Agreement (APA) concluded between the
European Commission and AstraZeneca on the sale of Corona vaccines.
When studying this contract assume a regulatory perspective and answer the following
questions:
1) What is the European Commission contracting for?