As accepted for publication in (2005) 68 Modern Law Review 2005 Terence Daintith contractual discretion and administrative discretion: a unified analysis

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As accepted for publication in (2005) 68 Modern Law Review
© 2005 Terence Daintith

  1. Prologue

Consider the following clauses.

“An application for approval to drill a new exploration or development well, or to re-enter an existing exploration or development well shall be made in duplicate not less than one month or such other period as is approved prior to the commencement of the operation, and such an operation shall not be commenced without prior approval.”2

“If any other pits should be required other than the two in part sunk, then the [mineral lessee] shall have power to sink another pit, or other pits, as aforesaid, but only in such a situation, or such situations, as shall have been previously approved of in writing by [the landowner].”3
Each of these clauses reserves a power of control over a key operation in exploring for or producing minerals (oil and gas in the first example, coal in the second) to the owner or controller of such resources who arranges for their exploitation by a company with the necessary capital and specialist skills. The owner or controller may be the state, which is the case in the first example, or a private person or company, as in the second. In terms the provisions are much alike, but the first is a general direction made under legislative authority by Australian Ministers responsible for the regulation of offshore oil and gas production, while the second is a clause of an agreement between a private owner of land in Scotland and the holder of a coal mining lease over it. The provisions share the characteristic of expressing a power to consent – or not – to the drilling of a well or pit in apparently unfettered terms. Such consents are, in practice, rarely problematic – the resource owner or controller shares with the exploiting company a financial interest in speedy and full exploration and production – but if a dispute did arise and require resolution by litigation, the court would need to decide whether the discretion of the owner to refuse or qualify consent had been properly exercised. Should or will the fact that the power is administrative (as in the first case),4 or contractual (as in the second), determine or influence the court’s construction of these discretionary powers?
2 Introduction

Discretion – a legally-constituted power of decision – is a staple element in both administrative5 and contractual arrangements, but whereas its judicial control provides the core of administrative law in the United Kingdom and Australia, it is hardly even acknowledged as an issue in the standard authorities on contract.6 This may be because the basic contractual discretions are commonly not expressed in contracts but are contained within the general rules of contract law: those determining, for example, when a party may terminate a contract on the basis of the other’s breach.7 In recent years, however, some leading contract scholars have addressed it, but in terms which suggest that discretion is a topic with which contract law has difficulty, one on which it needs to learn from administrative law,8 or one which the courts have only recently, following the imposition of legislative controls on certain powers taken under contracts, begun to address.9 These conclusions seem to me to neglect a significant body of contract case-law which, l shall argue, shows a well-developed approach to express contractual discretions developing from the mid-nineteenth century, an approach which is essentially identical to that currently employed in judicial review of administrative action.10 What I shall do here, therefore, is to trace the development of this case-law alongside that of the approach to judicial review of administrative discretion, and to seek to show how control in both contexts has converged on a single core technique which I term control through decisional standards.

The article also tries to weigh the significance of this finding against established conceptions of a basic difference between public law ordering, based on unilaterally imposed changes in the legal rights and duties of individuals, and contractual ordering, based on concepts of consent and party autonomy.11 The notion of a fundamental divide between these orders already appears problematical when one notes how contract and unilateral ordering may be substituted for one another in certain regulatory contexts like the arrangements for minerals cited above. Among public lawyers, the argument that a common set of values underpins decision-making and control of power in both public and private law has been deployed to challenge the justification for maintaining clear distinctions between public and private law process and in debates about the constitutional foundations of judicial review.12 I shall however argue that identity of method in private and public law review of discretion does not entitle us to assume that there will be parallel trends in the evolution of such review nor that its results will necessarily be identical in parallel cases like those cited in the prologue. Differences of context may override similarities of approach.
The argument of the article is organised as follows. In the next two sections I briefly trace the development, over about the last century and a half, of judicial technique for the control of administrative discretion (section 3) and of contractual discretion (section 4). I then examine the similarities and differences in technique in relation to administrative and contractual powers (section 5), and the different characteristics of the contexts in which the technique of control is applied (section 6). I conclude by relating the analysis here to debates about the public-private law divide and to practical choices between legal forms where – as in the natural resources area - these are available (section 7).

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